What you must know about Three M Paper Boards IPO: ₹10 face value, book building with ₹67 to ₹69 price band

About Three M Paper Boards Ltd

Three M Paper Boards Ltd was incorporated in the year 1989 and is engaged in the manufacture of high-quality recycled paper-based Duplex Board products. This product finds extensive applications for packaging across various industries. Some of the industries that use these packaging products include food and beverages, pharmaceuticals, cosmetics, and consumer goods. Three M Paper Boards Ltd has an extensive and well-established market for domestic and international customers. Three M Paper Boards Ltd has a manufacturing facility located at Chiplun in the Ratnagiri district of Maharashtra with manufacturing capacity of 72,000 tonnes per annum (TPA) of paper. The marketing is handled by a network of 25 dealers spread across India. Apart from the domestic markets, Three M Paper Boards Ltd exports its products to more than 15 countries in the Asia-Pacific, Middle East, the Mediterranean, and Africa. The company currently employs 231 employees on its rolls across various functions and verticals.

Highlights of Three M Paper Boards IPO

Here are the key highlights of the Three M Paper Boards IPO on the SME segment of the Bombay Stock Exchange (BSE):

•    The issue opens for subscription on 12th July 2024 and closes for subscription on 16th July 2024; both days inclusive.

•    The stock of Three M Paper Boards IPO has a face value of ₹10 per share and it is a book building issue. The price band for the book building issue is set in the range of ₹67 to ₹69 per share. The final price will be discovered in this price band only.

•    Three M Paper Boards IPO has only a fresh issue component and no offer for sale (OFS) component in the public issue. While the fresh issue portion is EPS dilutive and equity dilutive, OFS is just a transfer of ownership and  hence it is neither EPS dilutive nor is it equity dilutive.

•    As part of the fresh issue portion, Three M Paper Boards IPO will issue a total of 57,72,000 shares (57.72 lakh shares), which at the upper band IPO price of ₹69 per share aggregates to fresh fund raising of ₹39.83 crore.

•    Since there is no offer for sale, the fresh issue of shares will also double up as the total issue size. As a result, the overall IPO size will also comprise of the issue of a total of 57,72,000 shares (57.72 lakh shares) which at the upper band of the IPO price at ₹69 per share will aggregate to overall IPO size of ₹39.83 crore.

•    Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,90,000 shares. Comfort Securities 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 Hitendra Dhanji Shah, Mrs. Prafulla Hitendra Shah, and Mr. Rushabh Hitendra Shah. 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 70.00%.

•    The fresh issue funds will be used by the company for capex for installing machinery at its existing facility, installation of plastic-fired low-pressure boiler, repayment / prepayment of certain loans and for long term working capital. Part of the funds will also be used for general corporate purposes. 

•    Comfort Securities 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 Comfort Securities Ltd. The IPO of Three M Paper Boards Ltd will be listed on the SME IPO segment of the BSE.
 

Three M Paper Boards IPO – Key Dates

The BSE SME IPO of Three M Paper Boards IPO opens on Friday, 12th July 2024 and closes on Tuesday, 16th July 2024. The Three M Paper Boards IPO bid date is from 12th July 2024 at 10.00 AM to 16th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 16th July 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 July 19th 2024, will be visible to investors under the ISIN Code – (INE0UK501010). 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

Three M Paper Boards IPO has already announced the market maker allocation at 2,68,800 shares as inventory for market making. SS Corporate Securities Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Three M Paper Boards IPO in terms of 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 ₹1,38,000 (2,000 x ₹69 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 ₹2,76,000. 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 is no maximum size limit for HNI applicants in an SME IPO. Let us now turn to the financial highlights of the Three M Paper Boards IPO. The company has reported numbers up to the close of fiscal year FY24 (Year ended March 2024). It has also reported for the two additional months to May 2024.

Financial Highlights: Three M Paper Boards Ltd

The table below captures the key financials of Three M Paper Boards Ltd for the last 3 completed financial years. 

Data Source: Company DRHP filed with SEBI

The sales growth in the last 3 years are not comparable as the prices have been volatile and hence the realizations too have been volatile. The FY24 sales are lower than the FY22 sales, but that is normal in a cyclical industry. However, the company reported a progressive increase in net profits in the previous year FY24 on account of much better cost management. As a result, we will only consider the latest year profits for our analysis as weighted averages could skew the output. Its latest year net margins are modest at 4.17% while the ROE and the ROA are impressive at 18.57% and 10.65% respectively. Even the asset turnover ratio at 2.56 shows aggressive sweating of assets and that is also a positive feature. This is also magnified by the robust level of ROA.

The company has latest year EPS of ₹8.60 and we have not included the weighted  average EPS, since the growth has been quite volatile in the last 3 years. The latest year earnings are being discounted by the IPO price of ₹69 per share at 8-9 times P/E ratio, which is fairly reasonable if you consider the steady growth in the profitability margins. Sine there are no data points for FY25, there is no extrapolation of data here.

The company also comes to the table with some qualitative advantages. Its long standing brand in the Duplex paper segment itself is a major entry barrier to the industry. The waste is likely to be used for captive power generation and that is likely to keep the company on the radar of investors. The only area of uncertainty is the cyclicality of pricing, but that is not really having an impact on the bottom line as costs are also passed on. Investors with a higher degree of risk appetite can look to participate in this IPO, and keep a time frame of around 1 year to see traction in value. The pricing at the current juncture looks to be reasonable, but a lot will depend on the sustainable valuations that the company can command.