What you must know about Jiwanram Sheoduttrai Industries IPO

Jiwanram Sheoduttrai Industries Ltd was incorporated in the year 1997. It is one of the leading manufacturers of industrial safety gloves and garments. Apart from a large domestic franchise, the company also has a major export franchise. Jiwanram Sheoduttrai Industries Ltd has manufacturing units located at Baruipur, Nandankanan and at the Falta SEZ in West Bengal. Its exports are predominantly head-to-toe safety wear and workwear. Its operations are classified into 3 verticals. Firstly, it makes industrial leather gloves including Canadian welder gloves, driver gloves and mechanical gloves. These are typically customized to the unique customer needs. Secondly, it makes industrial garments with features like fire retardant, water repellent, high visibility, oil repellent, UV protection, anti-bacterial etc; and are also largely customized. Lastly, Jiwanram Sheoduttrai Industries Ltd also manufactures work and casual wear garments for specific industries like hospitals, hotels, etc on a made-to-order basis. It has clients spread across the US, Spain, Germany, and Belgium.

Over the years, Jiwanram Sheoduttrai Industries Ltd has stamped its ability to create value through consistent quality and product innovations. Its distribution scale has deep spread at a domestic and global level. The company is a government recognized Star Export House for the manufacture and export of work and safety wear. The manufacturing operations of the company takes care of all the requisite value chain steps in-house. This includes procuring & inspecting the raw materials, segregating the raw materials, manufacturing products based on customer specifications, control & product quality assurance as well as the packaging and distribution of the finished products. This gives the company total control over the timing, inventory timing and quality of the full value chain from procurement of raw materials to delivery of the end product to the customer.

Key terms of Jiwanram Sheoduttrai Industries IPO (SME)

Here are some of the highlights of the Jiwanram Sheoduttrai Industries IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 8-September-2023 and closes for subscription on 12-September-2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the IPO has been fixed at ₹23 per share. For all analysis purposes, this is the price that is considered for analysis, since the price discovery is already done.
   
• The IPO of Jiwanram Sheoduttrai Industries Ltd has only a fresh issue component with no book built 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 portion of the IPO, Jiwanram Sheoduttrai Industries Ltd will issue a total of 74,22,000 shares (74.22 lakhs), which at fixed IPO price of ₹23 per share aggregates to a total fresh fund raising of ₹17.07 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the overall IPO size will comprise of the issue of 74.22 lakh shares, which at fixed IPO price of ₹23 per share will aggregate to ₹17.07 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation that is yet to be decided. However, the general practice is that the company allocates around 5% of the overall IPO size for the market maker as part of the market making quota.
   
• The company has been promoted by Alok Prakash, Anupama Prakash, Gyan Prakash and Alok Prakash HUF. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares promoter equity share will reduce to 70.00%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for repayment of unsecured loans availed by the company. Part of the funds raised will also go towards general corporate expenses.
   
• While Affinity Global Capital Markets Private Ltd will be the lead manager to the issue, Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue is yet to be officially announced.

Jiwanram Sheoduttrai IPO allocation and minimum lot size for investment

The SME IPOs normally announce around 5% of the issue size as inventory allocation for the market makers. The balance shares (also called the net offer) will be equally divided between the retail investors and the non-retail investors. Here non-retail investors will predominantly include the HNI / NII investors and also partially include some QIBs. The break up in terms of minimum and maximum allowed quota is captured in the table below.

The minimum lot size for the IPO investment will be 6,000 shares. Thus, retail investors can invest a minimum of ₹138,000 (6,000 x ₹23 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 12,000 shares and having a minimum lot value of ₹276,000. 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 Jiwanram Sheoduttrai IPO (SME)

Jiwanram Sheoduttrai Industries IPO opens on Friday, 8-September-2023 and closes on Tuesday, September 12th, 2023. The Jiwanram Sheoduttrai Industries IPO bid date is from 8-September-2023 10.00 AM to 12-September-2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 12-September-2023.

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.

Financial highlights of Jiwanram Sheoduttrai Industries Ltd

The table below captures the key financials of Jiwanram Sheoduttrai Industries Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 8.8% in the latest year and it has been much lower on an average if you consider the previous 3 years. That is not a bad net margins for a company that is largely into custom made products where margins tend to be dictated by the bulk buyers. This is a business where the time to build a brand and credibility in the market is quite high and that is the early investment that the company has already made. That will be an intangible that would work in favour of the company. The challenge for the company would be more on servicing its large capital base, especially its equity base. That is evident from the sub 8% levels of ROE. That is not likely to be too supportive of valuations for the stock of the company.

Before we get into the P/E evaluation, there are some concerns on the asset heavy nature of the business. On an average, the asset base is nearly 3 times the size of sales revenue base and that is not going to be helpful for the asset turnover ratio or the asset utilization efficiency ratio of the company. In fact, the one factor that is actually impacting the ROE of the company is the low asset utilization ratio. The valuation story also has some challenges. appears to be relatively favourable. The weighted average EPS of the last 3 years has been around ₹1.45 while the latest EPS has been around ₹2.32 per share. Either ways, the P/E is not expensive but the high asset base makes the model risky. Investors in the IPO should be willing to take on higher risk and have a much longer waiting period perspective.