What you must know about GSM Foils IPO?

About GSM Foils Ltd

GSM Foils Ltd  was incorporated in the year 2019 to manufacture blister foils and aluminium pharma foils. The aluminium foils are also called strip foils and are generally used for packaging medicines like capsules and tablets. These are specialized foils as they are primary used as packaging materials in medicines and come into direct contact with these tablets or capsules. Hence, the quality and chemical reactions have to be taken care of. GSM Foils has a manufacturing capacity in Vasai, near Mumbai, which covers an area of 7,873 square feet (SFT). The facility is state of the art and is fully equipped to support seamless manufacturing processes, quality testing, research, storage, and packaging. The company has a presence across India with clients in 13 Indian states. GSM Foils Ltd currently has 39 employees on rolls across various technical and administrative functions.

Highlights of the GSM Foils IPO

Here are some of the highlights of the GSM Foils IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 24th May 2024 and closes for subscription on 29th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹32 per share. Being a fixed price issue, the question of price discovery does not arise.
   
• The IPO of GSM Foils Ltd has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, GSM Foils Ltd will issue a total of 34,40,000 shares (34.40 lakh shares), which at the fixed IPO price of ₹32 per share aggregates to fresh fund raising of ₹11.01 crore.
   
• Since there is no OFS, the fresh issue size will also double as the overall issue. Therefore, the overall IPO size will also comprise of the issue of 34,40,000 shares (34.40 lakh shares) which at the fixed IPO price of ₹32 per share will aggregate to overall IPO size of ₹11.01 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,76,000 shares. Shreni Shares Ltd will be the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Sagar Girish Bhanushali and Mohan Singh Parmar. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 73.14%.
   
• The fresh issue funds will be used by the company for funding capital expenditure for purchase of plant and machinery, as well as to fill the working capital gaps. A small part will also be used for general corporate expenses.
   
• Shreni Shares Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Shreni Shares Ltd.

GSM Foils IPO – Key Dates

The SME IPO of GSM Foils Ltd IPO opens on Friday, 24th May 2024 and closes on Tuesday, 28th May 2024. The GSM Foils Ltd IPO bid date is from 24th May 2024 at 10.00 AM to 28th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 28th May 2024.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on May 30th 2024, will be visible to investors under the ISIN Code – (INE0SQY01018). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

GSM Foils Ltd has already announced the market maker allocation at 1,76,000 shares as inventory for market making. Shreni Shares Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of GSM Foils Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 4,000 shares. Thus, retail investors can invest a minimum of ₹1,28,000 (4,000 x ₹32 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 8,000 shares and having a minimum lot value of ₹2,56,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

There are no upper limits for investments by HNIs / NIIs in the IPO of GSM Foils Ltd.

Financial highlights: GSM Foils Ltd

The table below captures the key financials of GSM Foils Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown at a robust pace in FY22, albeit stagnated in FY23. Still, the sales growth in FY23 over FY21 is nearly 81%. However, while net profits and margins have grown they remain at relatively low levels overall.
   
• While net margins of the company are fairly tepid at 2.17%, it has built up traction in the last 2 years. The return on equity (ROE) stands at 17.11% in FY23, while the return on assets (ROA) is robust at 9.94% in FY23.
   
• The asset turnover ratio or the sweating ratio has been healthy at over 4.5X and that is good considering the capital intensity of the business. However, this sweating ratio also gets supported by the robust levels of return on assets (ROA).

The company has latest year EPS of ₹1.71 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹32 per share at 18-19 times P/E ratio, which does look quite expensive considering the low net profit margins of the business. One has to look at the P/E ratio from two perspectives. Since the company is yet to announce the FY24 results, we can use available data to extrapolate. The 9-month EPS for FY24 stands at ₹1.49 per share and when extrapolated to full-year EPS of ₹1.99, it translates into a P/E ratio of 16-17 times earnings.

GSM Foils Ltd does bring some intangible advantages to the table like cost effective production, a well-equipped manufacturing facility and established relationships in the niche client base. However, the company’s profit margins remain very low and that is quite common in this outsourcing business where larger] clients tend to dictate pricing and IRR levels. One question that the company has not answered is how the ROE will grow, since that is the key to valuations. Investors must tread cautiously on this IPO since the valuations look steep. Investors may have to take a long term perspective and also be willing to take added risk to invest in the IPO. The company may still need a few more quarters to be able to justify current valuations.