Rating: 2/5 Verdict: Avoid
About the Company
Lamosaic India Ltd. (LIL) started as a partnership firm under the name “Swastik Marketing,” dealing in products like flush doors, decorative laminates, acrylic sheets, and plywood. In FY24, it transitioned into a public limited company and began small-scale manufacturing while continuing its trading activities. The company sells directly to customers, through authorized dealers/distributors, and franchisees.
However, it operates in a highly competitive and fragmented market, making it challenging to sustain growth in the long term. Despite its impressive earnings, no other companies in this industry have achieved similar profitability, raising questions about the sustainability of its performance.
IPO Details
- The IPO offers 30,60,000 equity shares at a fixed price of ₹200 each, aiming to raise ₹61.20 crore.
- Minimum application: 600 shares.
- Post-IPO, the company’s equity capital will rise to ₹10.34 crore, valuing the business at ₹206.76 crore.
- Funds raised will be used for loan repayment, working capital, acquisitions, and general expenses.
Financial Highlights
LIL’s financial growth from FY23 onwards has been extraordinary, but this sudden surge is hard to explain.
- FY22: ₹10.03 crore revenue, ₹0.51 crore profit.
- FY23: ₹31.76 crore revenue, ₹4.07 crore profit.
- FY24: ₹55.66 crore revenue, ₹8.23 crore profit.
- H1 FY25 (annualized): ₹72.87 crore revenue, ₹10.76 crore profit.
The company’s profit margins improved significantly (14.79% in FY24, 14.77% in H1 FY25), but these figures seem unusual for its industry. Its return on capital employed (RoCE) is also exceptionally high, hitting 42.25% in FY24.
Valuation
- The IPO is priced at a P/E ratio of 9.61 based on projected FY25 earnings and 25.12 based on FY24 earnings.
- These valuations make the issue appear fully priced, leaving little room for future upside.
Key Concerns
- Competitive Market: The plywood and laminates industry is fragmented, with many players offering similar products. Sustaining growth in such a market is difficult.
- Sudden Growth: The sharp rise in earnings from FY23 onwards is surprising and raises questions about whether this growth can continue.
- Limited Workforce: As of September 2024, the company employed just 9 permanent employees and 23 contract workers, which seems small for a company aiming for large-scale operations.
- Comparable Peers: The listed peers mentioned (e.g., Archidply, Sylvan Ply) have significantly higher revenue but lower profitability, suggesting that LIL’s performance may not be sustainable.
Investment Strategy
The company’s financial performance may look impressive, but the risks outweigh the potential rewards:
- High Risk: Competitive industry, fragmented market, and questionable growth sustainability.
- Low Return: Fully priced IPO with limited upside potential.
Given these factors, this IPO doesn’t seem like a good investment. Skipping this opportunity may be a safer choice for investors.