Aartech Solonics BSE SME IPO review (Avoid)

•    ASL is in the field of service/solution provider in power sector.
•    It has multiple products under multiple technologies.
•    Sudden jump in bottom line for FY18 and H1 of FY19 raises concern.
•    Issue appears aggressively priced with based ib uts consolidated earnings.

ABOUT COMPANY:
Aartech Solonics Ltd. (ASL) is a system solution oriented R&D enterprice in the field of specialized and selected energy appliances. It is involved in the manufacturing of electricity distribution and control apparatus for a voltage exceeding 1000 volts. Similar products for voltage not exceeding 1000 volts are also manufactured. The product list includes boards, panels, consoles, cabinets, switches, fuses, voltage limiters, surge suppressors, junction boxes etc. ASL aims to be multi-product, multi-technology services/solution providing company in the power related field.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of investments in wholly owned subsidiaries, working capital and general corpus fund needs, ASL is coming out with a maiden IPO of 2120000 equity shares at a fixed price of Rs. 34 per share to mobilize Rs. 7.21 crore. Issue opens for subscription on 21.02.19 and will close on 26.02.19. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 30.03% of the post issue paid up capital of the company. Issue is solely Lead Managed by Swastika Investmart Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue.

Company's entire equity is issued at par so far. It has also issued bonus shares in the ratio of 6 for 1 (July 2009), 3 for 1 (Sept. 2010), Average cost of acquisition of shares by the promoters is Rs. 1.07 per share. Post issue ASL's current paid up equity capital of Rs.4.94 crore will stand enhanced to Rs. 7.06 crore.

FINANCIAL PERFORMANCE:
On financial performance front, for last three fiscals ASL has (on standalone basis) posted turnover/net profits of Rs. 10.26 cr. / Rs. 0.23 cr. (FY16), Rs. 13.42cr. / Rs. 0.30 cr. (FY17) and Rs. 12.09 cr. / Rs. 1.18 cr. (FY18). For first half of FY19 it has earned net profit of Rs. 0.60 cr. on a turnover of Rs. 4.17 cr. Thus sudden sump is bottom line for last one and half year is a bit surprising and raises concern. While on consolidated basis offer document has reported net profit of Rs. 0.76 cr. on a turnover of Rs. 11.10 cr. for FY18 and net profit of Rs. 0.30 cr. on a turnover of Rs. 4.14 cr.

For last three fiscals it has posted an average EPS of 1.47 and average RoNW of 4.11% (on standalone basis). For FY18 on a consolidated basis it has posted an average EPS of Rs. 0.74 and an average RoNW of 2.16%. Issue is priced at a P/BV of 9.44 on the basis of consolidated NAV of Rs. 36.01 as on 30.09.18 and at a P/BV of 9.60 on the basis of consolidated post issue NAV of Rs. 35.41.

If we annualize latest (consolidated) earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 40 making it aggressively priced offer. On standalone basis too the asking price is at a P/E of around 20.

COMPARE WITH  LISTED PEERS:
As per offer documents it has shown Star Delta and Transformers and Rectifiers as its listed peers who are currently trading at a P/Es of around 6 and 25 (as on 15.02.19 closing). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 18th mandate from its stable in last three fiscals. Out of last 10 listings 2 opened at discount to offer price and the rest 8 with a premium ranging from 1.67% to 20% on the day of listing.