Shree Tirupati Balajee Agro IPO analysis

Shree Tirupati Balajee Agro IPO (initial public offering) will open for subscription on September 5, 2024 and close on September 9, 2024. Here's a breakdown of the packaging products manufacturer's strengths, weaknesses, and growth prospects to help investors make an informed decision.

Shree Tirupati Balajee Agro IPO in a nutshell

• Quality : Its three-year average ROE and ROCE were 18 per cent and 13 per cent, respectively, during FY22-24.
  
• Growth : The company's revenue and profit after tax grew 10 per cent and 69 per cent per annum, respectively, during FY22-24.
  
• Valuation : Post the IPO, the company will trade at a P/E and P/B ratio of 23.1 and 2.3 times, respectively.
  
• Overview : The company primarily offers flexible intermediate bulk containers that are giant, durable bags. They are a popular choice for safely transporting large amounts of material across industries. Their demand is expected to remain firm, which will benefit Shree Tirupati Balajee. The growing acceptance of Indian products in the global markets will also aid the company's export segment. Though, its revenue from exports has been reducing in favour of the domestic business. Nonetheless, the industry, as a whole, has low-entry barriers and intense competition, which pose risk to the company's growth.

About Shree Tirupati Balajee Agro Trading

Incorporated in 2001, Shree Tirupati Balajee Agro Trading is a packaging solutions provider that primarily manufactures flexible intermediate bulk containers (FIBCs), commonly known as bulk bags. Its other products include woven sacks, woven fabric, and narrow fabric. The company's packaging bags are used across various industries such as chemicals, waste disposal, agriculture and food products. FBIC, and woven and narrow fabric segments together made up around 73 per cent of its FY24 revenue. Meanwhile, nearly 49 per cent of its total FY24 revenue came from exports.

Strengths of Shree Tirupati Balajee

• Client retention: The company's top five and top 10 customers, which accounted for 32 and 46 per cent of its FY24 revenue, respectively, have been associated with it for more than 15 years.
  
• Solid port connectivity: Its manufacturing facilities are located near major Indian ports such as Nhava Sheva, Kandla Port, Hazira Port, and Mundra Port, which allows it to efficiently manage its overseas supplies with lower costs.

Weaknesses of Shree Tirupati Balajee

• High working capital requirements: The company has high working capital requirements as inventories and receivables, together, made up 67 per cent of its total assets in FY24. Moreover, it had median inventory days of 235 during FY20-24, which is the highest of its peers.
  
• High competition in FIBC: The top 10 companies in the Indian FIBC industry made up nearly 44 per cent of the industry revenue in FY23. This suggests a few players have a strong hold on the market, which is marred by steep competition.

Risk report

Company and its business

• Was the company's earnings before tax more than Rs 50 crore in the last 12 months?
  No. Shree Tirupati Balajee reported a profit before tax of Rs 47 crore in FY24.
  
• Will the company be able to scale up its business?
  Yes. FIBCs offer many transportation benefits like convenience in handling large loads, chemical resistance, and weight reduction, leading to lower transportation costs. All these factors are keeping their demand and adoption buoyant across industries such as food and beverages, pharmaceuticals, and chemicals.
  
• Does the company have a credible moat?
  No. It operates in a highly competitive environment.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Post the IPO, the promoters' stake will be 65.4 per cent.
  
• Do the top three managers have more than 15 years of combined leadership at Shree Tirupati Balajee?
  Yes. Chairman and Managing Director Binod Kumar Aggarwal has been associated with the company since its inception.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Shree Tirupati Balajee free of promoters pledging its shares?
  Yes. The company is free of promoters pledging their shares.

Financials

• Did the company generate a current and three-year average return on equity (ROE) of more than 15 per cent and a return on capital employed (ROCE) of more than 18 per cent?
  No. Shree Tirupati Balajee's three-year average ROE and ROCE were 18 and 13 per cent, respectively. In FY24, its ROE and ROCE were nearly 21 per cent and 16 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  No. It posted negative cash flow from operations in FY22 and FY24.
  
• Is the company's net debt-to-equity ratio less than one?
  No. Its net debt-to-equity ratio was 1.4 times as of FY24.
  
• Is the company free from reliance on huge working capital for day-to-day affairs?
  No. Its inventories and receivables made up 67 per cent of its total assets in FY24. Moreover, it had a median cash conversion cycle of 252 days during FY22-24 due to high inventory days.
  
• Can the company run its business without relying on external funding in the next three years?
  No. The company will be utilising nearly 76 per cent of the IPO proceeds to repay debt and fund its working capital requirements. Moreover, it has generated negative cash flows in two of the last three financial years and has a poor cash balance on its books.
  
• Is the company free from meaningful contingent liabilities?
  No. The company's contingent liabilities as a percentage of equity was 55 per cent as of FY24.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. Shree Tirupati Balajee will offer an operating earnings yield of 6 per cent.
  
• Is the stock's price-to-earnings ratio less than its peers' median level?
  Yes. The company will trade at a price-to-earnings ratio of 23.1 times as compared to its peers' median level of 34.4 times.
  
• Is the stock's price-to-book value less than its peers' average level?
  No. The company will trade at a price-to-book ratio of 2.3 times as compared to its peers' average level of 1.6 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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