Ameya Precision NSE SME IPO review (May apply)

•    APEL is in the business of manufacturing precision components for the engineering industry.
•    Its revenue includes around 98% of export earnings. 
•    For the last three fiscals, it posted a static top line, but the bottom line marked inconsistency.
•    The issue appears fully priced based on its FY22 earnings. 
•    Cash surplus/risk seeker may invest with a medium to long-term perspective.

ABOUT COMPANY:
Ameya Precision Engineers Ltd. (APEL) is engaged in the manufacturing of high-end precision components (shafts, and other trim components) for the general engineering industry, but in particular valve and pump manufacturing. It also offers specialized processes like hard-facing and overlay of wear and corrosion-resistant alloys in line with ASME procedures. APEL offers an end-to-end solution from procurement of raw materials to the final dispatch of hard-facing and overlay components.

Its major customers are valve and pump manufacturers. It exports to the United States of America, the United Kingdom, Germany, Singapore, Slovenija, Austria, and Brazil. The majority of its sales are through exports which contributed 94.07%, 96.22%, and 95.72%, respectively of revenue from operations for the financial year ended March 31, 2022, 2021, and 2020. As of March 31, 2022, it had 118 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for capital expenditure (Rs. 0.64 cr.), working capital (Rs. 2.76 cr.), and general corporate purposes (Rs. 1.02 cr.), APEL is coming out with a maiden IPO of 2100000 equity shares of Rs. 10 each at a fixed price of Rs. 34 per share to mobilize Rs. 7.14 cr. The issue opens for subscription on August 25, 2022, and will close on August 30, 2022. It's a combo IPO of 1500000 fresh equity shares (Rs. 5.10 cr.)  and an Offer for Sale of 600000 equity shares (Rs. 2.04 cr.). Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28% of the post-issue paid-up capital of the company. APEL is spending Rs. 0.68 cr. for this IPO process. 

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

After issuing initial equity at par, the company issued bonus shares in the ratio of 1 for 1 in March 2021, and in the ratio of 2 for 1 in December 2021. The average cost of the acquisition of shares by the promoters is Rs. 1.67 per share. 

Post IPO, APEL's current paid-up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 7.50 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 25.50 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, APEL has reported turnover/net profits of Rs. 23.48 cr. / Rs. 1.80 cr. (FY20), Rs. 24.89 cr. / Rs. 2.73 cr. (FY21) and Rs. 23.96 cr. / Rs. 1.52 cr. (FY22). While its top line remained static, its bottom line has marked inconsistency. 

For the last three fiscals, APEL has posted an average EPS of Rs. 3.28 and an average RoNW of 16.45%. The issue is priced at a P/BV of 1.51 based on its NAV of Rs. 22.51 as of March 31, 2022, and at a P/BV of 1.37 based on its post-issue NAV of Rs. 24.81 per share. 

If we attribute FY22 earnings on post-issue fully diluted equity capital, then the asking price is at a P/E of 16.75. 

COMPARISON WITH LISTED PEERS: 
As per offer documents, APEL has shown Remsons Ind., Kranti Ind. and Atam Valves as its listed peers. They are currently trading at a P/E of 22.51, 31.37, and 63.03 (as of August 22, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY: 
The company has not declared/paid any dividend for the reported periods of the offer documents. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with premiums ranging from 0.6% to 59.73% on the day of listings.