IPO Update: Uma Exports will make their debut on Thursday; Expected Listing Price will be!

Despite good market optimism, Uma Exports, a trader of agricultural produce and commodities, is projected to have a muted listing due to lower-than-expected subscription to the initial public offering (IPO) and a competitive environment with poor margins.

The Business raised Rs.60 crore in its first public offering, which was oversubscribed 7.67 times between March 28 and March 30, 2022. Investors responded positively to the offer, with the retail component being subscribed 10.11 times, qualified institutional buyers bidding 2.81 times the given quota, and non-institutional investors bidding 2.22 times the allotted quota, respectively.

The proceeds from the offering will be used to meet the company’s working capital needs. The offer’s price range was Rs.65-68 per equity share.

“We anticipate a quiet listing show due to lower-than-expected IPO subscription demand. We believe that because it is a smaller IPO, its historical financial inconsistencies and aggressive issue pricing have failed to pique the primary market’s interest “ Mehta Equities’ vice-president (research), Prashanth Tapse, agreed. The business sought a market capitalization of Rs.229.9 crore at the upper price range, whereas its rival Sakuma Exports was trading at more over Rs.330 crore.

Sugar, spices such as dry red chillies, turmeric, coriander, and cumin seeds, food grains such as rice, wheat, corn, sorghum, and tea, pulses, and agricultural feed such as soybean meal and rice bran de-oiled cake are all traded and marketed by Uma Exports.

Given the issue’s high values, heavy debt on its books, and negative margin profile, all brokerage houses placed a ‘avoid’ rating on it.

“Considering the FY21 adjusted EPS (earnings per share) of Rs.3.63 on a post-issue basis, the company will list at a P/E (price-earnings) of 18.71x with a market cap of Rs.229.9 crore, whereas its peer, Sakuma Exports, is trading at a P/E of 16.20x,” said Marwadi Financial Services, which had given the IPO a ‘avoid’ rating because the company operates in a competitive environment with low margins (earnings before interest tax, depreciation and amortisation or EBITDA margin of 2.83 percent in FY21) and does not offer much value to investors.

Hem Securities further stated that, while the company’s ratios such as margins and return on shareholder’s fund were better than its peers, they advised investors to ‘avoid’ the issue due to its business profile and debt.

The company’s outstanding total fund-based indebtedness was Rs.56.28 crore in September 2021, up from Rs.38.62 crore in March 2021. According to Hem Securities, the company may incur additional debt during the course of its business, in addition to the debt incurred for its current activities.

During the period from FY19 to FY21, revenue from operations expanded at a CAGR of 51.10 percent, while profit grew at a CAGR of 105.45 percent and EBITDA grew at a CAGR of 52.76 percent, while margin growth posted a CAGR of just 2 basis points.