What you must know about Visaman Global Sales IPO?

About Visaman Global Sales Ltd

Visaman Global Sales Ltd  was incorporated in the year 2019 and supplies a wide range of pipes and structural steel products to its customers. Among its product palate, the company supplies round pipes, square pipes, and rectangle pipes. Apart from these long products, Visaman Global Sales Ltd also supplies structural steels of various specifications customised to the needs of the clients. These products include BGL coils, GP (GI) coils, HR (hot rolled) coils, CR (cold rolled) coils, colour-coated coils, MS sheets, GP sheets, GC Sheets, CR sheets, HR sheets etc. In addition, Visaman Global Sales Ltd also supplies roofing PUF panel and wall PUF panel. Since most requirements are very specific, the company also offers customization to specific customers, apart from off-the-shelf products. The products are offered in customized product sizes and dimensions. Being a supplier, it does not have any manufacturing facility of its own. However, Visaman Global Sales Ltd has a stockyard in Gujarat and warehouses across Gujarat and Madhya Pradesh. The company currently employs a staff of 41 personnel across various functions.

Highlights of the Visaman Global Sales IPO

Here are some of the highlights of the Visaman Global Sales IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 24th June 2024 and closes for subscription on 26th June 2024; both days inclusive.

•    The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹43 per share. Being a fixed price issue, the question of price discovery does not arise. 

•    Visaman Global Sales IPO only has a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion of the IPO, Visaman Global Sales Ltd  will issue a total of 37,32,000 shares (37.32 lakh shares), which at the fixed IPO price of ₹43 per share aggregates to fresh fund raising of ₹16.05 crore.

•    Since there is no offer for sale portion in the IPO, the fresh issue will also double up as the total issue size. Hence the overall IPO will also comprise of the issue of 37,32,000 shares (37.32 lakh shares) which at the fixed IPO price of ₹43 per share will aggregate to overall IPO size of ₹16.05 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 1,92,000 shares as quota for market making inventory. Shreni Shares Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Mitulkumar Sureshchandra Vasa, Sureshchandra Gulabchand Vasa, Avni Vasa, Ilaben Sureshchandra Vasa and Kular Brijesh. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 72.98%.

•    The fresh issue funds will be used by the company for capex towards setting up a manufacturing unit at Rajkot in Gujarat and for funding working capital needs. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Shreni Shares 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 Shreni Shares Ltd.

The IPO of Visaman Global Sales Ltd  will be listed on the SME IPO segment of the NSE.

Visaman Global Sales IPO – Key Dates

The SME IPO of Visaman Global Sales Ltd  IPO opens on Monday, 24th June 2024 and closes on Wednesday, 26th June 2024. The Visaman Global Sales Ltd  IPO bid date is from 24th June 2024 at 10.00 AM to 26th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 26th June 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 June 28th 2024, will be visible to investors under the ISIN Code – (INE0BHK01012). 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

Visaman Global Sales Ltd  has announced a market maker allocation of 1,92,000 shares, which will be used as inventory for market making. Shreni Shares 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 (non-institutional investors). QIB bids if any would be classified under the non-institutional category. The breakdown of the overall IPO of Visaman Global Sales in terms of allocation to categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹1,29,000 (3,000 x ₹43 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 6,000 shares and having a minimum lot value of ₹2,58,000. 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 are no upper limits for investments by HNIs / NIIs in the IPO of Visaman Global Sales Ltd. 

Financial highlights: Visaman Global Sales Ltd 

The table below captures the key financials of Visaman Global Sales Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY21 to FY23, being the latest year. 

•    The revenues over the last 3 years have been fairly robust in terms of growth. However, if you look at the sales of FY23 and compare with FY21, then the net revenues are up 2.76 times in this 2-year period. That is a robust story. However, what is an area of concern is the extremely low net profit margin of just about 0.30%. 

•    While net margins of the company are very low at 0.30% in the latest year, the margins have almost been steady in the last 3 years. The return on equity (ROE) stands at 11.40% in FY23, while the return on assets (ROA) is modest at 1.93% in FY24. 

•    One area of concern for the company is the high levels of debt. For example, the short term debt of the company is nearly 4 times its net worth, which has put pressure on the net margins. If you add the long term borrowings also, then it is about 5 times equity. In the latest year, the cost of materials is nearly 99% of its sales and most of the net profit generation is coming from inventory valuation gains. Interest costs are also fairly high.

•    The asset turnover ratio or the sweating ratio is relatively low in the latest year at 6.41X and that looks great on paper. But, that is more because it is a supplier and not a manufacturer and hence asset size is relatively small compared to sales.

The company has latest year EPS of ₹1.12 and we have not included the weighted  average EPS, since the growth has been quite steady, but factored in bonus calculations. The latest year earnings are being discounted by the IPO price of ₹43 per share at 38-39 times P/E ratio. That looks slightly on the higher side, especially if you consider the net margins on the company and the ROA, that are relatively lower. If you extrapolate 9-month EPS of FY24 of ₹1.01; you get full year EPS of nearly ₹1.35. Even on these extrapolated numbers, the P/E is still stiff at 31-32 times, which is hard to explain.

To be fair, Visaman Global Sales Ltd  some bring some intangible advantages to the table. It has built long and deep relationships with customers and a wide range of longs and flats on offer. It also offers end-to-end comprehensive customer solutions. However, all that cannot fully explain why investors should pay such a steep valuation, especially when the overall debt of the company is five times its equity and the cost of materials are nearly 99% of sales. Investors would have a hard time convincing themselves, although it could still work over the longer haul. But it would be a high risk appetite call for the investors.