AIK Pipes BSE SME IPO review (May apply)

•    APPL is in the manufacturing of comprehensive range of HDPE/MDPE pipes.
•    It has marked constant growth in its top and bottom lines.
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    The sustainability of margins amidst rising competition is a major concern.
•    Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
AIK Pipes and Polymers Ltd. (APPL) is engaged in manufacturing of comprehensive range of HDPE (High density polyethylene) pipes, HDPE Fittings, MDPE (Medium density polyethylene) Pipes and PPR (Polypropylene random) Pipes for water distribution, gas transmission, sewerage system and telecom sector. The Company is committed towards constant innovations in drinking water piping solutions, irrigation and sewerage technologies to meet the constantly increasing demands.

The company has a well-equipped manufacturing facility. It has the latest technology and equipment that helps in the production of high-quality HDPE pipes of different sizes. Its manufacturing facility is fully automated. The company also has a well-trained team of engineers, technicians and operators that helps in the production and quality control of the products. The products manufactured are approved by various agencies such as the Bureau of Indian Standards (BIS) and also from organization, Central Institute of Petrochemicals Engineering and Technology, Indian Oil Corporation, and GAIL.

It is registered vendor with government organizations such as Public Health Engineering Department and Rajasthan Water Supply & Sewerage Management Board all over Rajasthan. The Company has always strived to provide its clients with the best HDPE pipes in the market. With the help of the latest technology and equipment, the company has been able to produce high-quality HDPE pipes that are not only durable but also affordable.

AIK Pipes has been successfully manufacturing and marketing its products under the brand name AIK Pipes and is well known for its commitment to quality and service. As of June 30, 2023, it had 23 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1688000 equity shares of Rs. 10 each at a fixed price of Rs. 89 per share to mobilize Rs. 15.02 cr. The issue opens for subscription on December 26, 2023, and will close on December 28, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.53% of the post-IPO paid up capital of the company. The company is spending Rs. 2.00 cr. for this IPO process, and from the net surplus, it will utilize Rs. 1.03 cr. for capital expenditure, Rs. 9.00 cr. for working capital, and Rs. 2.99 cr. for general corporate purposes.

The issue is solely lead managed by Shreni Shares Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 100 per share in December 2022, and February 2023. It has also issued bonus shares in the ratio of 8 for 3 in May 2023.The average cost of acquisition of shares by the promoters is Rs. 3.99, and Rs. 18.35 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 4.68 cr. will stand enhanced to Rs. 6.36 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 56.63 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 10.21 cr. / Rs. 0.27 cr. (FY21), Rs. 20.91 cr. / Rs. 0.88 cr. (FY22), and Rs. 30.78 cr. / Rs. 1.88 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 1.02 cr. on a total revenue of Rs. 14.00 cr.  

For the last three fiscals, the company reported an average EPS of Rs. 3.56 and an average RoNW of 36.50%. The issue is priced at a P/BV of 6.28 based on its NAV of Rs. 14.17 as of June 30, 2023, and at a P/BV of 2.88based on its post-IPO NAV of Rs. 30.88 per share. 

If we attribute annualized FY24 super earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 13.88. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 2.68% (FY21), 4.30% (FY22), 6.16% (FY23), 7.40% (Q1-FY24). The sustainability of such margins going forward is a major concern amidst rising competition. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Rex Pipes and Prince Pipes as their listed peers. They are trading at a P/E of 17.69 and 37.53 (as of December 21, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from Shreni Shares in the last three fiscals. Out of the last 10 listings, all listed with premiums ranging from 4.94% to 143.24% on the date of listing.