Artemis Electricals BSE SME IPO review (May apply)

•    Artemis is engaged in manufacturing and trading of LED lights and related accessories.
•    FY18 and 7MFY19 financial data raise a concern with a sudden boost in the top and bottom lines.
•    Based on super earnings and P/E ratios, the issue is fully priced.
•    The LED segment is highly competitive with many MNCs in the fray.

ABOUT COMPANY:
Artemis Electricals Limited (AEL) is an ISO 9001:2015, ISO 14001:2015 & OHSAS 18001:2007 certified Company engaged in the business of manufacturing and trading of Light Emitting Diode 'LED' Lights and LED lighting accessories. AEL manufactures and trades in all sorts of outdoor and indoor LED-based lighting solutions such as Street lights, Solar Powered Home LED lighting Systems and LED-based Street Lights, Down lights, Garden lights, pavement / walk through indication lights, etc. Company's products are used for illumination and special purposes in a variety of applications for general lighting, in particular architectural, residential, office, industrial, shop, hospitality, and outdoor.

AEL's portfolio includes solutions across the LED luminary spectrum i.e. from the high technology LED emitter to LED driver & LED luminaries including Solar Powered Home LED lighting Systems and LED-based Street Lights. LED drivers are manufactured in a modern facility, mainly using SMD components on an automatic pick-n-place machine.

Artemis with its own manufacturing plant is a preferred partner for Original Equipment Manufacturer 'OEM' business clientele for various well-known and established lighting brands in India such as Bajaj Lighting, Crompton Greaves, and Eveready to name a few. The company has started developing a distribution network for making 'Artemis' as a Brand by providing lighting solutions, available in leading stores all over the country.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital needs (Rs. 22.06 cr.), purchase of machinery/equipment (Rs. 5.08 cr.) and general corpus fund needs, AEL is coming out with a maiden IPO of 7000000 equity shares of Rs. 10 each via book building route.  It has fixed a price band of Rs. 55 – Rs.60 and mulls mobilizing Rs. 38.5 cr. – Rs. 42 cr. (based on lower and upper price bands). The issue opens for subscription on 24.04.19 and will close on 30.04.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME.  Sole Lead Manager (LM) to the issue is Fedex Securities Ltd. while Cameo Corporate Services Ltd. is the registrar. NNM Securities Pvt. Ltd. is acting as a market maker for the issue.

Having issued initial equity at par, AEL raised further equity capital at the price of Rs. 50 (in March 2010) and Rs. 90 (in January 2016). It has also issued bonus shares in the ratio of 6.5 shares for every 10 shares (in January 2016), 3 shares for every 1 share (in June 2018) and 33 shares for every 100 shares (in March 2019). Issue constitutes 28.34% of the post issue paid up equity capital of the company. The average cost of acquisition of shares by the promoters is Rs. 1.16 and Rs. 1.41 per share. Post issue AEL's current paid up equity capital of Rs. 17.70 cr. will stand enhanced to Rs. 24.70 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AEL has posted turnover/net profits of Rs. 45.34 cr. / Rs. 1.55 cr. (FY16), Rs. 47.24 cr. / Rs. 1.77 cr. (FY17) and Rs. 89.51 cr. / Rs. 9.53 cr. (FY18). For the first seven months ended on 31.10.18, the company has earned a net profit of Rs. 5.93 cr. on a turnover of Rs. 52.42 cr. A sudden boost in the top and bottom lines in pre-IPO and IPO year appears to be window dressing and raises concern.

For the last three fiscals, AEL has posted an average EPS of Rs.3.18 and an average RoNW of 37.36%. The issue is priced at a P/BV of 4.44 based on its NAV of Rs. 13.50 as on 31.10.18.

If we annualize its latest super earnings of FY19 and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 14.56 (at the upper price band). However, the sustainability of its recent super earnings is a million dollar question. The LED segment has turned highly competitive with many MNCs in the fray.  

COMPARISION WITH LISTED PEERS:
As per offer documents, the company has no listed peers to compare with.

MERCHANT BANKER'S PERFORMANCE:
Draft offer documents were filed by other LM (Holani Consultants) and now the issue is on through another LM (Fedex Securities). This leaves room for some concern over valuations aspect. This is the 7th mandate from Fedex in last three fiscals. Out of last 6 listings, 1 opened at par and 1 at discount to offer price. Rest 4 opened with a premium ranging from 2% to 56.52% on the day of listing.