What you must know about Italian Edibles IPO?

Italian Edibles Ltd was incorporated in the  year 2009. The company is into the business of offering a wide range of confectionery products like Rabdi, milk paste, chocolate paste, lollipops, candies, jelly sweets, multigrain puffed buns, and fruit-based products. Both its manufacturing facilities are located in Indore in the state of Madhya Pradesh. Italian Edibles Ltd has a strong point of presence in the rural and semi-urban areas. Its franchise is strong in the states of Andhra Pradesh, Assam, Bihar, Chhattisgarh, Gujarat, Haryana, Himachal Pradesh, Jharkhand, Karnataka, Uttar Pradesh, Uttarakhand, and West Bengal. Apart from domestic sales, Italian Edibles also exports its products to countries like Nigeria, Yemen, Senegal, and Sudan. Its products are sold on the B2B and on the B2C channels. Some of its bigger customers include names like Chocolate World, Yuvraj Agency, Bakewell Biscuits etc.

Italian Edibles Ltd is a manufacturer, supplier, and exporter of confectionery products. The company actually pioneered milk paste in India and has over 15 years of experience and expertise in this industry. The company has been built on the 3 pillars of quality, cost effectiveness and fresh ingredients. The quality philosophy extends from material selection through packaging, including the entire confectionary process. Italian Edibles uses fresh and natural flavours for its ingredients to retain its natural feel and taste. Thirdly, cost effectiveness is about offering products at competitive prices without compromising on quality. This is achieved through their simplified manufacturing process. The existing network of Italian Edibles Ltd helps them to sell across India. The company has over 450 selling partners in 22 states, apart from 5 exporters.

Key terms of the Italian Edibles IPO

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

• The issue opens for subscription on 02nd February 2024 and closes for subscription on 07th February 2024; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue has been set at ₹68 per share. Being a fixed price issue, there is no question of price discovery in this issue.
   
• The IPO of Italian Edibles Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Italian Edibles Ltd will issue a total of 39,20,000 shares (39.20 lakh shares), which at the fixed IPO price of ₹68 per share aggregates to fresh fund raising of ₹26.66 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 39.20,000 shares (39.20 lakh shares) which at the fixed IPO price of ₹68 per share will aggregate to overall IPO size of ₹26.66 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,00,000 shares. Nikunj Stock Brokers Ltd will be the market maker 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 Ajay Makhija and Akshay Makhija. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.47%.
   
• The fresh issue funds will be used by the company for setting up the manufacturing unit, repayment of existing borrowings and to meet incremental working capital expenses. Part of the monies raised will also go towards general corporate expenses.
   
• First Overseas Capital 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 Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

Italian Edibles Ltd has already announced the market maker allocation at 2,00,000 shares as inventory for market making. Nikunj Stock Brokers Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Italian Edibles Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹136,000 (2,000 x ₹68 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 4,000 shares and having a minimum lot value of ₹272,000. 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.

Key dates to be aware of in the Italian Edibles IPO (SME)

The SME IPO of Italian Edibles Ltd IPO opens on Friday, 02nd February 2024 and closes on Wednesday, 07th February 2024. The Italian Edibles Ltd IPO bid date is from 02nd February 2024 at 10.00 AM to 07th February 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 07th February 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 09th February 2024, will be visible to investors under the ISIN Code – (INE0R7R01018).

Financial highlights of Italian Edibles Ltd

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

Data Source: Company DRHP filed with SEBI

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

• The revenues have been relatively erratic over the last 2 years, although it is still higher on absolute basis compared to FY21. What stands out is that the profits are up more than 3-fold despite the sales being lower in the latest year. That is largely on account of better inventory management that has resulted in inventory gains for the company and gave a boost to the profits.
   
• While net margins of the company have been tepid and only recently spiked above the 4% mark, the ROE has been attractive in the latest year at over 24%. The ROA is also attractive at over 6%, but previous comparisons do not add much value. However, the spike in margin in FY23 is due to inventory gains and that is normally not a sustainable source of profits for a company. Investors need to watch for that.
   
• The asset turnover ratio or the sweating ratio has been above one on a consistent basis but that really may not be the core issue in this business, with the focus being more on spreads and margins. However, with ROA attractive, sweating can magnify the positives.

The company has latest year EPS of ₹2.43 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹1.60. On the latest EPS, the valuations look reasonable at 27-28 times P/E discounting, although it must be said that this limits the upside on the table for investors, if the inventory gains were just a one-time benefit. The discounting may be slightly unfavourable on average P/E but that does not matter. However, the company does have some qualitative gains here. The brand is well established in India and abroad in the specific confectionary line of products. Also, the company has consistently built on the attributes like quality and channel presence. Although the P/E discount is slightly on the higher, investors with a higher risk appetite and willing to wait for over a year can seriously look at this IPO from an investment perspective.