Ashoka Metcast BSE SME IPO review (May apply)

Ashoka Metcast Ltd. (AML) is a Gujarat based Group Company. Group has business interests in various sectors including Oil and Gas, Steel, Infrastructure, Electronic Equipments and Real Estate. Group’s flagship company – Gujarat Natural Resources Limited. is engaged in the business of Oil & Gas exploration and production and currently has participating interests in 6 producing blocks in Cambay basin and is operator in four of these blocks. The company is listed on BSE and has a market capitalization of around 125 crores. AML is currently engaged in trading of structural steel products such as Round Bars, Flat Bars etc. and through its wholly owned Subsidiary, SGRM the company is proposing to manufacture structural steel products like TMT bars, angles, channels, MS Bars etc. Company plans to leverage its group and promoter networks in the real estate and infrastructure space as well as strong balance sheet situation to increase its presence in the structural steel market of Gujarat and Western India. It has commenced its trading operations in September, 2017. AML has acquired 100% stake in its subsidiary Shree Ghantakarna Rolling Mills Pvt. Ltd. (SGRM) that owns rolling mills with a installed capacity of 12000 mtpa.

To part finance its investment plans in SGRM, repayment of loans and general corpus fund needs, AML is coming out with a maiden IPO of 6000000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 12.00 crore. Issue opens for subscription on 23.01.18 and will close on 25.01.18. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 56.02% of the post issue paid up capital of the company. Cost of acquisition of shares by the promoters is Rs. 19.98 and Rs. 20. After raising initial equity at par, it raised further equity at a price of Rs. 20 per share. Post issue, its current paid up equity capital of Rs. 4.71 crore will stand enhanced to Rs. 10.71 crore.

As AML has started its operations from second quarter of current fiscal, it has (on a consolidated basis) reported net profit of Rs. 0.05 crore on a turnover of Rs. 6.52 crore for the period ended on 15.11.2017.On standalone basis for past three fiscals it has reported revenue/net profits of Rs. 0.01 cr. / Rs. 0.01 cr. (FY15), Rs. 0.004 cr. / Rs. 0.001 cr. (FY16) and Rs. 0.10 cr. / Rs. 0.01 cr. (FY17). Revenue for all these years was from other income. For last three fiscals, it has posted an average EPS of Rs. 6.90 and average RoNW of 478.79% on an equity base of mere Rs. 0.01 crore. In fact on consolidated basis, it has posted an EPS of Rs. 1.08 and RoNW of 0.86% (both annualized) for the period ended 15.11.17 on an equity base of Rs. 4.71 crore. If we annualize the latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 26 plus and thus issue is fully priced. As per offer documents its peers are trading at a P/Es ranging from 17 to 50. (In this compare table, AML’s figures are based on an equity base of mere Rs. 0.01 crore).

On merchant banker’s front, this is the 24th mandate from its stable in last three fiscals. Out of last 10 listings 2 opened at a discount, 3 around par and the rest with a premium ranging from 1 to 20% on the day of listing. (With listing of Silly Monk as on 18.01.18)

Conclusion: Considering fully priced issue, cash surplus risk savvy investors may consider investment for long term. (Other- apply at your own risk).