Panchkula-based packaging player DK Enterprises has launched its IPO and the offer will remain open through 12 October 2021. The company is looking to raise INR8 crore by selling 1,998,000 shares at the price of INR40 per share. We have gone through the prospectus to better understand the company and have analyzed its operations on 25 parameters. Here is DK Enterprises IPO Review in a nutshell, please scroll down for the detailed view.
DK Enterprises IPO Review
DK Enterprises IPO Review: Business Basics
Are the company’s annual revenues more than INR50 crore?
Yes. DK Enterprises had revenues of nearly INR65 crore in FY2021.
Are the company’s annual profits after tax in excess of INR5 crore?
No, DK Enterprises’ net earnings after tax stood at INR2.44 crore in FY2021 while net profits for Q1 FY2022 were INR1 crore.
Has the company got a strong and recognizable brand?
No. DK Enterprises sells its products to HUL, ITC, Godrej, Patanjali, Amul, Philips, Reckitt/Dettol, Phone Pe and Vodafone VI and its products are often branded for these customers.
Is there a strong moat in place in the form of entry barriers, market reach etc?
Yes, DK Enterprises operates in a capital-intensive industry which acts as an entry barrier, although there are a number of competitors. Nevertheless, it has longstanding business relationships with its clients which is difficult to replicate.
Is the company free of big client risks in terms of impact on revenues?
Yes. DK Enterprises’ top 10 customers accounted for 74.6% of its total sales in FY2021. Given the fact that it supplies high volume products to a limited set of customers, this represents diversification across its clients.
Do exports contribute a sizeable chunk to annual revenues, giving the company an edge over its competitors?
No. Although DK Enterprises exports its products to Sri Lanka, its sales are largely focused on India.
Is there a strong connect between the company and retail consumers?
Nopes. As mentioned above, the company operates in B2B (Business to Business) trade and thus, hasn’t got a retail connect.
DK Enterprises IPO Review: Management Analysis
Is the company’s top management experienced enough to lead operations through difficult times?
Yes, Mr Rakesh Kumar and Mrs Rekha Bansal are actively involved in the management and have vast experience in the field of paper-based packaging industry, BOPP Tapes and Gummed Paper Tapes. Mr Dhruv Rakesh holds an MBA from Indian Institute of Foreign Trade (IIFT) and has over 5 years of experience in the industry.
Are the management members/promoters paying themselves fairly without jeopardizing shareholders’ interests?
Yes, we didn’t find excessive remuneration for management.
Do the promoters have sizeable equity left in the company after the IPO?
Yes, the promoters and promoter group currently own 5,503,400 shares or 99.88% equity stake in the company. Following the IPO, this shareholding will drop to 73.3%.
Is the current management trustworthy? Are there instances of putting shareholders’ interests at risk for personal gains?
Yes, we didn’t find such instances.
Are the litigations or criminal proceedings against the company insignificant in nature and doesn’t involve big numbers?
Yes. There are a few tax-related cases outstanding against DK Enterprises and its subsidiary. However, the amount involved is quite small at INR10.01 lakhs. There are no criminal cases pending against the company or its promoters or directors.
Are the company management’s shares free from any pledge with banks or financial institutions?
Yes. As on the date of the prospectus, no promoter shares are pledged.
Are there external investors such as private equity or venture capital firms on board?
No. As mentioned above, the company is almost full-owned by the family as of now.
DK Enterprises IPO Review: Financial performance
Have the company’s revenues grown at a CAGR of at least 10% in the last three years?
Yes. DK Enterprises’ topline jumped from INR45.55 crore in FY2020 to INR64.96 crore in FY2021.
Have the company’s net profits grown at a CAGR of at least 25% in the last three years?
Yes. DK Enterprises’ earnings surged to INR2.44 crore in FY2021 from INR1.50 crore in FY2020.
Has the Average Return on Equity (ROE) in the last three years been more than 15%?
Yes. The company’s average Return On Net Worth (RONW) in the last two years has been 38.13%.
Has the company maintained positive operating cashflows in the last three years?
Has the company witnessed a declining trend in debt/equity (D/E) in the last three years?
Yes. DK Enterprises’ D/E ratio declined from 1.69 in FY2020 to 0.97 in FY2021.
Are the company’s working capital requirements less than 20% of its annual sales?
Yes. DK Enterprises requires high working capital but its working capital requirement stood at 7.64% of its annual revenues in FY2021.
Is the Debt/Equity ratio less than 1?
Yes, the company’s D/E ratio as of 31 March 2021 stood at 0.97.
DK Enterprises IPO Review: IPO objectives and valuations
Are the IPO objectives in line with the broad corporate guidelines? Funds raised shouldn’t be used for fancy purchases and upgrades.
Yes, the funds will be primarily used to set-up a new manufacturing plant and augment working capital.
Is the company offering some discount on Price/Earnings (P/E) ratio compared to its peers?
Yes. The company is offering its shares at the P/E ratio of 5.85. This is cheaper than its peers Hindustan Adhesives and GKP Printing & Packaging.
Is the company offering some discount on Price/Book Value (P/BV) ratio compared to its peers?
No, DK Enterprises’ P/BV is at 2.76 which is higher than most of its listed peers.
Are the contingent liabilities less than 10% of latest annual revenues?
Yes. Contingent liabilities including commercial tax and income tax stood at just INR0.03 lakhs in FY2021.
Disclaimer – The objective behind DK Enterprises IPO Analysis is to offer an unbiased view of the company’s operations, offer details, strengths, weaknesses, financial performance and valuation. The IPO rating framework helps investors in taking a call if DK Enterprises IPO is worth investing or not. Nevertheless, this is not an IPO recommendation to subscribe or avoid and the decision to invest should be based on individual investor’s risk profile.