Anlon Technology NSE SME IPO review (May apply)

•    ATSL is primarily engaged in providing engineering services for engineering systems.
•    Its super earnings in the pre-IPO period raise eyebrows. 
•    Based on profits reported recently, the issue appears reasonably priced. 
•    The sustainability of such margins going forward is a major concern.
•    Well-informed cash surplus investors may consider parking funds for the medium to long term.
 
ABOUT COMPANY:
Anlon Technology Solutions Ltd. (ATSL) is primarily engaged in the business of providing engineering services for engineering systems, built on automotive chassis and allied areas, majorly for airports, high-rise buildings, and refineries. The Company also sells spare parts for performing engineering services which is an ancillary part of the engineering services. 

In FY22, the company entered into a contract for the fabrication and installation of airport interior equipment where it did sourcing, supervising & quality control of the manufacturing process, and did safe transportation & installation of the end product to the installation site, overseeing safe installation, and have supplied conveyer belt systems in airports for air cargo handling companies and
have also been providing equipment and services for runway maintenance.

The company identifies requirements in aviation infrastructure and mobile fire-fighting and coordinates for imports of high-performance equipment from world-class suppliers. Part of the mission of the company is to understand the need of the market and translate the same onto specialist manufacturers for working out and offering appropriate solutions. In the case of overseas manufacturers, which most often is the case, Anlon provides end-to-end techno-commercial support which includes specifying the solution, facilitating techno-commercial interaction between the manufacturer and the end user, and assisting in order processing, and support in successful implementation by providing all logistic support in India such as customs clearance, inland transportation, etc. 

ATSL further offers help in installation, commissioning, training, warranty, and post-warranty services and thus looking after the equipment for its whole lifetime. It also supports spare parts distribution. As of the date of filing this offer document, it has 113 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1500000 equity shares of Rs. 10 each via the book-building route. It has announced a price band of Rs. 95 - Rs. 100 and mulls mobilizing Rs. 15.00 cr. at the upper cap. The issue opens for subscription on December 29, 2022, and will close on January 02, 2023. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.76% of the post-issue paid-up capital of the company. From the net proceeds of the IPO money, ATSL will utilize Rs. 10.25 cr. for the working capital, and for general corporate purposes. It has allocated 76800 shares for the market maker, 710400 (50%) shares for QIBs, 213600 (15%) shares for HNIs, and 499200 (35%) shares for Retail investors. 

The sole lead manager for this IPO is GYR Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar of the issue while Rikhav Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at Rs. 100 per share in September 2022. It has also issued bonus shares in the ratio of 400 for 1 in July 2022. The average cost of acquisition of shares by the promoters is Rs. 0.0014 and Rs. 0.02 per share. 

Post-IPO, ATSL's current paid-up equity capital of Rs. 4.11 cr. will stand enhanced to Rs. 5.61 cr. At the upper cap of the IPO price band, the company is looking for a market cap of Rs. 56.05 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ATSL has posted a turnover/net profit of Rs. 13.81 cr. / Rs. 0.69 cr. (FY20), Rs. 14.44 cr. / Rs. 0.74 cr. (FY21), and Rs. 19.59 cr. / Rs. 2.43 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 2.39 cr. on a turnover of Rs. 13.42 cr. The sudden boost in bottom lines in the pre-IPO year appears as window dressing. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.93 and an average RoNW of 41.45%. The issue is priced at a P/BV of xx based on its NAV of Rs. 20.05 as of September 30, 2022, and at a P/BV of xx based on its post-IPO NAV of Rs. 41.44 per share (at the upper cap). 

If we annualize FY23 super earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 11.71.  However, the sustainability of super margins posted recently is the main concern.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The Lead Manager associated with the issue has handled 9 public issues in the last two fiscals (including the ongoing one), out of which no issues closed below the issue price on the listing date.