Gujarat-based Uma Converter is scheduled to launch its IPO on 15 December 2022 and it will remain open through 21 December 2022. The company is a manufacturer of flexible packaging material which is eventually used in food and beverage industry, e-commerce industry, pharmaceutical industry, hygiene and personal care industry, household industry and agricultural industry. The company plans to raise as much as INR 18.4 crore by issuing 55,80,000 shares at the rate of INR 33 per share. We have gone through the prospectus to better understand the company and have analyzed its operations on 25 parameters. Here is Uma Converter IPO Review in a nutshell, please scroll down for the detailed view.
Uma Converter IPO Review
Uma Converter IPO Review: Business Basics
Are the company’s annual revenues more than INR 50 crore?
Yes, Uma Converter (website) had revenues of nearly INR 187 crore in FY 2022.
Are the company’s annual profits after tax in excess of INR 5 crore?
Uma Converter’ net earnings after tax was just shy of INR 5 crore mark in FY 2022. In the six months of FY 2023, the company has managed to post earnings of INR 3.26 crore. On annualizing, this figure stands to cross the INR 5 crore threshold.
Has the company got a strong and recognizable brand?
No, Uma Converter is a B2B player and supplies its products to clients in various industries where price competitiveness is more desirable attribute.
Is there a strong moat in place in the form of entry barriers, market reach etc?
Yes, Uma Converter operates in a highly competitive and capital-intensive segment. These requirements, along with technical know-how, act as formidable entry barriers.
Is the company free of big client risks in terms of impact on revenues?
No. Uma Converter’s top 10 customers contributed 59.35% of its revenues in the H1 FY 2023. While this highlights the company’s dependence on a few clients, the positive side is that this dependency figure has come down from 84.19% in FY 2020.
Do exports contribute a sizeable chunk to annual revenues, giving the company an edge over its competitors?
No, only 1.57% revenue of Uma Converter came from exports during H1 FY 2023.
Is there a strong connect between the company and retail consumers?
No. As mentioned above, the company is primarily a B2B player with very little direct interface with retail consumers.
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Uma Converter IPO Analysis scores 3/7 in Business Basics section.
Uma Converter IPO Review: Management Analysis
Is the company’s top management experienced enough to lead operations through difficult times?
Yes, the company’s promoters Mr. Sumer Raj Lodha and Mrs. Nirmala Lodha have been associated with the company since its inception and have over three decades of experience in the packaging industry. Another promoter Mr. Abhishek Sumer Raj Lodha joined the company in 2015 and has played an important role in expansion of units in Gujarat state.
Are the management members/promoters paying themselves fairly without jeopardizing shareholders’ interests?
No. All three promoters were paid a total of INR 2.17 crore in FY 2022 which is quite high considering the company’s net income of INR 4.98 crore in the same year. The company has also disclosed that remuneration to Mrs. Nirmala Lodha and Mr. Abhishek Lodha during the financial year 2019-2021 was in breach of limits prescribed for payment of remuneration in the event of inadequate profits under Section 197 and clause II (A) of Schedule V (Part II) of the Companies Act, 2013.
Do the promoters have sizeable equity left in the company after the IPO?
Yes, the promoters and promoter group currently own nearly 95% equity stake in the company. Following the IPO, this shareholding will drop to nearly 69%.
Is the current management trustworthy? Are there instances of putting shareholders’ interests at risk for personal gains?
Apart from the excessive salary issue, we didn’t find instances of the management compromising shareholders’ interests.
Are the litigations or criminal proceedings against the company insignificant in nature and doesn’t involve big numbers?
There are no major litigation cases outstanding against Uma Converter, its directors, promoters or group entities. A total of 4 material civil litigations and direct tax matters are pending involving a total sum of INR 15.39 lakh.
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 largely owned by promoters and promoter group entities. There are no external investors.
Uma Converter IPO Analysis scores 5/7 in Management Analysis section.
Uma Converter IPO Review: Financial Performance
Have the company’s revenues grown at a CAGR of at least 10% in the last three years?
Yes. Uma Converter’ revenue jumped from INR 103.6 crore in FY 2020 to INR 186.99 crore in FY 2022, translating to a CAGR of 21.8%.
Have the company’s net profits grown at a CAGR of at least 25% in the last three years?
No. Uma Converter’ earnings stood at INR 2.8 crore in FY 2020 and INR 4.98 crore in FY 2022, marking a CAGR of 20.9%.
Has the Average Return on Equity (ROE) in the last three years been more than 15%?
No. The company’s average Return On Net Worth (RONW) in the last three years has been 9.2%.
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?
No. The company’s D/E increased from 1.39 in FY 2020 to 1.54 in FY 2022.
Are the company’s working capital requirements less than 20% of its annual sales?
No. Uma Converter required INR 57.8 crore working capital in FY 2022. Its working capital requirement stood at 30.9% of its annual revenues in the year.
Is the Debt/Equity ratio less than 1?
No, the company’s D/E ratio as of 31 March 2022 stood at 1.5.
Uma Converter IPO Analysis scores 2/7 in Financial Performance section.
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Uma Converter IPO Analysis: 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 finance working capital requirements and general corporate purposes.
Is the company offering some discount on Price/Earnings (P/E) ratio compared to its peers?
Yes. The company is offering its shares at a P/E ratio of 9.8 which is quite attractive, considering the listed peers like Mold-Tek Packaging and EPL (formerly Essel Propack).
Is the company offering some discount on Price/Sales (P/S) ratio compared to its peers?
Yes, Uma Converter’ P/S is at 0.36 which is less than Jindal Poly Films (0.61), Cosmo First (0.67), and Mold-Tek (4.2). Like other ratios, this is also an important parameter in Uma Converter IPO Review.
ma Converter IPO Review
Uma Converter IPO Review
Uma Converter IPO Review
Are the contingent liabilities less than 10% of latest annual revenues?
Yes. The company had contingent liabilities of INR 1.8 crore at the end of FY 2022 which translates to just 1% of annual revenues.
Uma Converter IPO Analysis scores 4/4 in Valuations section.
Uma Converter IPO Review gets a score of 14/25 indicating average fundamentals. Head to our Uma Converter IPO page to get live subscription status and check out IPO GMP page for latest grey market movements.
Disclaimer – The objective behind Uma Converter 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 Uma Converter 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.