Aesthetic Engg. NSE SME IPO review (Apply)

•    The company is engaged in the business of building facades, aluminium doors/windows, GRC related contracts/services.
•    It marked growth in its top lines for the last two fiscals.
•    For FY24, it posted higher margins with value added contracts.
•    With super earnings of FY24, the issue appears fully priced. 
•    Investors may park funds for the medium to long term. 

ABOUT COMPANY:
Aesthetic Engineers Ltd. (AEL) is engaged in the business of designing, engineering, fabrication and installation of facade systems. Its portfolio includes building facades, Aluminium Doors and Windows, Railing and Staircase and Glassfibre Reinforced Concrete (GRC). The company offers a wide range of products and services to meet the demands of customers who belong to various industries such as Hospitality, Residential, Commercial, and Infrastructure Projects. It executes end to end solution of offerings i.e., from designing of façade to installation of facade at the site. To be a globally recognized leader in providing innovative and sustainable façade solutions, aluminium doors and windows, GFRC and Solar EPC, it aspires to redefine architectural aesthetics while prioritizing environmental responsibility and fostering long-lasting partnerships with clients.

The company has offered its services to various construction projects including commercial complex, residential building, airports, and Malls in various states such as West Bengal, Bihar, Maharashtra, Assam, Odisha and Gujarat. As of June 30, 2024, the Company had employed 52 permanent employees which are on its payroll. As of March 31, 2024, it has ongoing projects worth Rs. 67.36 cr. 

According to the management, its technical tie-up with SCHUECO India Pvt. Ltd. - an Indian arm of a German company has brought momentum for its growth and the company currently executing projects across the nation for its operations/services. It is set to expand its outlets/offices and mark higher top and bottom lines in coming years. Its client list includes Infosys, L & T, Shapoorji Pallonji, Kolkata One Execution, Siti Networks, Ambuja Housing and Urban Infra, to name a few. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4564000 equity shares of Rs. 10 each to mobilize Rs. 26.47 cr. at the upper cap. It has announced a price band of Rs. 55 - Rs. 58 per share. The issue opens for subscription on August 08, 2024, and will close on August 12, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 15.00 cr. for working capital, Rs. 8.00 cr. for capex, and the rest for general corporate purposes. 

The issue is solely lead managed by Narnolia Financial Services Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Broker 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. 59 - Rs. 200 per share between March 2010 and November 2013. It has also issued bonus shares in the ratio of 14 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 0.67, Rs. 0.98, Rs. 2.43, and Rs. 7.33 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.66 cr. will stand enhanced to Rs. 17.22 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 99.88 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 40.36 cr. / Rs. 1.13 cr. (FY23), Rs. 60.80 cr. / Rs. 5.03 cr. (FY24). Surprisingly, the company has given its financial data in Rs. thousands against Rs. in Lakhs or Rs. in million. This appears to be an eyewash. 

For the last two fiscals, it has reported an average EPS of Rs. 7.09, and an average RoNW of 26.21%. The issue is priced at a P/BV of 4.89 based on its NAV of Rs. 11.87 as of March 31, 2024, and at a P/BV of 2.41 based on its post-IPO NAV of Rs. 24.10 per share (at the upper cap). 

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 19.86, Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 2.81% (FY23), 8.28% (FY24), and RoCE margins of 0.18%, 0.37% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends in any financial year so far. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Innovators Facade as their listed peer. It is trading at a P/E of 26.0 (as of August 06, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Narnolia Financial in the last two fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount and the rest listed with premiums ranging from 4.35% to 110.36% on the date of listing.