What you must know about Signoria Creations IPO?

About Signoria Creation Ltd

Signoria Creation Ltd was incorporated in the year 2019 and the company manufactures and sells women's clothing. The women’s line of clothing includes Kurtis, pants, tops, dupattas, and gowns. Signoria Creation Ltd currently has 2 manufacturing units (Unit 1 and Unit 2) located at Man Sarovar and Sanganer; both near Jaipur in the state of Rajasthan. The total operational capacity of the factory for the financial year FY23 stands at more than 4,77,000 pieces of quality garments. It employs a total of 147 employees on its rolls. While only a small chunk of the employees are on permanent rolls, majority of them are either temporary employees or contract workers. The company uses an omnichannel approach to market its products mixing offline and online properties.

Key terms of the Signoria Creation IPO (SME)

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

• The issue opens for subscription on 12th March 2024 and closes for subscription on 14th March 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book building issue. The price for the book building issue is set in the price band of ₹61 to ₹65 per share. Being a book built issue, the price will be discovered in the above band.
   
• The IPO of Signoria Creation 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.
   
• As part of the fresh issue portion of the IPO, Signoria Creation Ltd will issue a total of 14,28,000 shares (14.28 lakh shares), which at the upper band of IPO price of ₹65 per share aggregates to fresh fund raising of ₹9.28 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 14,28,000 shares (14.28 lakh shares) which at the upper band IPO price of ₹65 per share will aggregate to overall IPO size of ₹9.28 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 72,000 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 Vasudev Agarwal and Babita Agarwal. 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 69.99%.
   
• The fresh issue funds will be used by the company for funding the working capital requirements of the company as well as a part of the funds utilized for general corporate purposes.
   
• Holani Consultants Private 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 Holani Consultants Private Ltd.

Signoria Creation IPO allocation and minimum lot size for investment

Signoria Creation IPO has already announced the market maker allocation at 2,40,000 shares as inventory for market making. Spread X Securities 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, the QIB investors and the HNI / NII investors. The breakdown of the overall IPO of Signoria Creation 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 ₹130,000 (2,000 x ₹65 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 ₹2,60,000. 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 Signoria Creation IPO (SME)

Signoria Creation IPO opens on Tuesday, 12th March 2024 and closes on Thursday, 14th March 2024. The Signoria Creation Ltd IPO bid date is from 12th March 2024 at 10.00 AM to 14th March 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 14th March 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 18th 2024, will be visible to investors under the ISIN Code – (INE0RDE01010).

Financial highlights of Signoria Creation Ltd

The table below captures the key financials of Signoria Creation 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 growing at a rapid pace and have grown more than three-fold in the last 2 years. This has also been accompanied by consistent growth in net profits which is reflected in the net margins more than doubling in the latest fiscal year FY23.
   
• Due to the sharp growth in the net profits, the net margins have grown rapidly to a level of 12.07% in FY23, while the ROE (return on equity) and the ROA (return on assets) have also been robust in the latest year at 39.62% and 9.90% in the latest year.
   
• The asset turnover ratio or the sweating ratio has been just under 1.00 and that is a tolerable sign that sales are picking up to cover the asset outlays. However, it has fallen in the latest year. With scale, the impact should be visible. In fact, with ROA attractive, lower sweating should not really pose much of a problem.

The company has latest year EPS of ₹27.70 and weighted average EPS of ₹19.44 for the last 3 years. Based on the latest year EPS, the IPO price upper band of ₹65 gets priced at a P/E ratio of under 4 times which is very reasonable for the retail industry. However, one caveat is that any investor investing in the IPO must convince themselves that the EPS growth can sustain in coming years since the first half shows some pressure of the dilution. For now, the valuations look attractive at FY23 valuations, but it would depend on profit margins sustaining. Investors intending to consider this IPO must be prepared for a higher level of business and cyclical market risk as well as a longer waiting period for IPO returns.