What you must know about Purv Flexipack IPO?

Purv Flexipack Ltd was incorporated in the year 2005 as a distributor of plastic products. This includes BOPP film, Polyester Films, CPP films, Plastic granules, Inks, Adhesives, Masterbatches, Ethyl Acetate, and Titanium Dioxide. Purv Flexipack Ltd provides various packaging solutions for a varied customer base. They have 4 warehouses for stacking and managing inventory. These warehouses are equipped with state-of-the-art facilities and equipment to ensure safe and secure storage of products. The warehouses are designed in such a way as to preserve the quality and integrity of the stored items; combined with very efficient and effective inventory management systems to ensure inventory tracking. The company has a total of 28 full time employees on board. Some of its key clients include Clear Premium Water, Uflex Ltd, Vacmet India Ltd, Poddar Pigments, Brilliant Polymers, Tronox and Max India Ltd.

Purv Flexipack Ltd offers a one-stop solution for all flexible packaging needs. In the process, it brings significant value to customers by providing high-quality products and services at competitive prices. Purv Flexipack has been involved in the trading and stockpiling of various flexible packaging materials and related products, which is where it started off. This includes materials like BOPP (Biaxially Oriented Polypropylene), Polyester, LDPE (Low-Density Polyethylene), as well as adhesive, ink, ethyl, master batches, and granules. Since the year 2017, Purv Flexipack Ltd has expanded its services by becoming a del cred agent of IOCL (Indian Oil Corporation Limited) for the supply of plastic granules in Kolkata & the surrounding regions. This diversifies the product offerings and forges strategic partnership with a major player in the industry.

Key terms of the Purv Flexipack IPO

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

• The issue opens for subscription on 27th February 2024 and closes for subscription on 29th February 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹70 to ₹71 per share. Being a book built issue, the final price of the IPO will be discovered in this price band.
   
• The IPO of Purv Flexipack 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, Purv Flexipack Ltd will issue a total of 56,64,000 shares (56.64 lakh shares), which at the upper end of the price band at ₹71 per share aggregates to fresh fund raising of ₹40.21 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 56,64,000 shares (56.64 lakh shares) which at the upper end of the price band of ₹71 per share will aggregate to overall IPO size of ₹40.21 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,48,800 shares. Holani Consultants Private 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 Rajeev Goenka, Poonam Goenka and M/S Purv Logistics Private Ltd. The promoter holding in the company currently stands at 92.17%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 67.29%.
   
• The fresh issue funds will be used by the company for repayment of existing borrowings availed by the company from scheduled commercial banks (SCBs) and for working capital needs. Part of the funds raised will also go towards general corporate expenses.
   
• Holani Consultants Private Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Holani Consultants Private Ltd.

IPO allocation and minimum lot size for investment

Purv Flexipack Ltd has already announced the market maker allocation at 3,48,800 shares as inventory for market making. Holani Consultants Private 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 Purv Flexipack 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 1,600 shares. Thus, retail investors can invest a minimum of ₹113,600 (1,600 x ₹71 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 3,200 shares and having a minimum lot value of ₹227,200. 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 Purv Flexipack IPO (SME)

The SME IPO of Purv Flexipack IPO opens on Tuesday, 27th February 2024 and closes on Thursday, 29th February 2024. The Purv Flexipack IPO bid date is from 27th February 2024 at 10.00 AM to 29th February 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 29th 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 March 04th 2024, will be visible to investors under the ISIN Code – (INE0R6C01012).

Financial highlights of Purv Flexipack Ltd

The table below captures the key financials of Purv Flexipack 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 grown at a rapid in the last 2 years and hence the latest year revenue data shows a secular growth trend. Overall revenue growth in last two years is over 1.5 times. The PAT margins are relatively low, but that is the nature of the distribution business, where it is more a game of volumes than of margins.
   
• While net margins of the company have tapering in the last few years, the 2.5% net margins is normally the sustainable level for a distribution company. However, the ROE and return on assets in the latest year are modest at 10.84% and 3.20% respectively.
   
• The asset turnover ratio or the sweating ratio has been above 1.29X and that is a good sign that sales have picked up to cover the asset outlays. This is a business where the spreads matter more than the sweating of assets since it is a ROI based business. The asset turnover ratio can get magnified by a better ROA.

The company has latest year EPS of ₹5.85 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹5.08. The latest year earnings are being discounted by the IPO price of ₹71 per share at 12 times P/E ratio. One has to look at the P/E ratio from two standpoints. Firstly, the half year EPS for FY24 is slightly higher at ₹3.05, which makes the valuations look more reasonable if the EPS is annualized and extrapolated. However, the real narrative is that the story becomes a lot more enticing once the economies of scale start to reflect on the profit numbers.

The company has some inherent advantages like the full suite of products and solutions under one roof, long standing relationships with the customer, and strong infrastructure to boot. The valuations do leave something on the table for investors. However, investors must be prepared for a higher level of risk considering that the industry tends to go through cycles. Also, the risk of competition from more established players is always there. Investors in this IPO must take a longer term perspective of a year or more.