Abha Power NSE SME IPO review (May apply)

•    The company is engaged in the business of iron and steel foundry for customised products. 
•    It has a product portfolio of 1000+ products for varied needs of the end users.
•    It posted static top lines for FY22 and FY23 with marginal profits, but for FY24 it reported bumper profits on declined top line, that raises eyebrows.
•    Based on its latest financial performance, the issue appears aggressively priced. 
•    Well-informed investors may park moderate fund for medium term. 

ABOUT COMPANY:
Abha Power & Steel Ltd. (APSL) is engaged in the business of iron and steel foundry, more particularly in the business of high CR & high Ni), HRCS & WRCS, from as small as 0.5 Kgs to 6 Tonnes single finished casting. It is a RDSO certified vendor for supply of certain casting products to Indian Railways and an approved vendor for supply of certain casting products to National Mineral Development Corporation and Integral Coach Factory, Chennai. The company is also holding a PED Certificate from TUV-Nord which certifies its quality management system for manufacturing of castings and makes it eligible for supply of pressure equipment to European nations.

Strategically located in mineral reach, densely industrialized and one of the steel hubs of central India i.e. state of Chhattisgarh it enjoys locational advantage as well. Over the years, it has leveraged expertise, processes and infrastructure to cater to diverse industries such as Indian Railways, steel, cement, heavy engineering, mining, power, etc. APSL offers to customers a comprehensive range of both standard and customised products. With around 20 years of experience, in understanding customer specific requirements, and have a strong focus on quality, safety, value proposition, and the price competitiveness of offerings, which has helped it in establishing and maintaining long term relationships with customers. The Company sell its products to domestic customers and also export them to over 6 countries, such as UAE, Germany, Canada, Italy and Netherlands.

As on date of this Prospectus, it had a diverse product portfolio of over 1000+ product supplemented by its ability to make customised products, demonstrates capability as an emerging supplier for a diverse range of products and positions as a strategic and preferred supplier. The company constantly strives to produce products of standard quality and sustainability. As of April 30, 2024, it had 65 employees on its payroll. Its modernized and upgraded facility is expected to be on stream by August 2025.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 5139200 equity shares of Rs. 10 each at a fixed price of Rs. 75 per share to mobilize Rs. 38.54 cr. The issue consists of 4139200 fresh equity shares (worth Rs. 31.04 cr. at the upper cap), and an Offer for Sale (OFS) of 1000000 equity shares worth Rs. 7.50 cr. at the upper cap). The issue opens for subscription on November 27, 2024, and will close on November 29, 2024. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.65% of the post-IPO paid-up capital of the company. The company is spending Rs. 4.20 cr. for fresh issue and from the net proceeds of the IPO, the company will utilize Rs. 16.39 cr. for capex on modernization and upgradation of its manufacturing facilities, Rs. 3.00 cr. for working capital, and Rs. 7.45 for general corporate purposes.  Overall the company will be spending Rs. 5.22 cr. for this entire IPO process (13.54%).

The IPO is solely lead managed by Horizon Management Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd. is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20.00 - Rs. 100 per share between March 2008 and July 2022. The company issued bonus shares in the ratio of 2 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 1.34, Rs. 3.33, Rs. 3.84, Rs. 3.94, and Rs. 4.78 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 14.45 cr. will stand enhanced to Rs. 18.59 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 139.41 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 54.98 cr. / Rs. - (0.72) cr. (FY22), Rs. 55.12 cr. / Rs. 1.40 cr. (FY23), and Rs. 51.83 cr. / Rs. 3.78 cr. (FY24). For 6.5M of FY25 ended on October 15, 2024, it earned a net profit of Rs. 3.62 cr. on a total income of Rs. 37.55 cr. After posting static top lines for FY22 and FY23, it marked degrowth in top line for FY24, but posted quantum jump in bottom line. So is the case for first 6.5 months of FY25. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.55 and an average RoNW of 14.81%. The issue is priced at a P/BV of 6.18 based on its NAV of Rs. 12.14 as of March 31, 2024, and at a P/BV of 2.67 based on its post-IPO NAV Rs. 28.08 per share. Surprisingly, the offer document has not shown its NAV as of October 15, 2024.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 20.83, and based on FY24 earnings, the P/E stands at 36.76. The issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of - (1.31) % (FY22), 2.56 % (FY23), 7.31% (FY24), 9.73% (6.5M-FY25), and RoCE margins of 6.99 %, 10.73%, 23.64%, 18.65% respectively for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the last five fiscals. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Bhagwati Auto, and Nelas of November 21, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Horizon Management in the last two fiscals. Out of last 9 listings, 2 opened at discount, 1 at par and the rest listed with premiums ranging from 8.48% to 141.23% on the listing date.