Atam Valves BSE SME IPO review (Avoid)

•    AVL engaged in manufacturing of valves and fittings.
•    Products are sold under the branch names ATAM and FEBI.
•    The company posted inconsistency in financial performance.
•    At a P/E of 33.61, IPO is aggressively priced.

ABOUT COMPANY:
Atam Valves Ltd. (AVL) is a manufacturer of reliable and quality valves. Both its manufacturing facilities in Jalandhar suit most of the manufacturing related requirements. Most of the valves are tailored to meet customers' specific requirements. It works in close tandem with clients to match valves to their most complex applications.

Many of AVL's design innovations have been the direct result of working closely with customers to solve difficult applications at their end. Its products are supplied in India as well as all over the world under two brands, viz., ATAM and FEBI. Under brand ATAM, it deals in Valves and fittings, steam traps and strainers. Under brand FEBI, it deals in Ball-Valves. AVL exports its products to more than 13 regions, viz., United States, Kuwait, Kenya, South Africa, Malaysia, Dubai, Indonesia, Australia, Oman, Philippines, Ethiopia, Nepal and United Kingdom.

ISSUE DETAILS/CAPITAL HISTORY:
To meet its plans for repayment/prepayment of certain borrowings (Rs.3.14 cr.) and general corpus find (Rs. 1.03 cr.) needs, AVL is coming out with a maiden IPO of 1125000 equity shares of Rs.10 each at a fixed price of Rs. 40 per share to mobilize Rs. 4.50 cr. The issue opens for subscription on September 18, 2020, and will close on September 25, 2020. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME platform.

Issue constitutes 27.27% of the post issue paid-up capital of the company. The company will be spending Rs. 0.33 cr. for this IPO process. The issue is solely lead managed by Fedex Securities Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd. is acting as a Market Maker for this company. Having raised entire equity at par, AVL issued bonus shares in the ratio of 2 shares for 1 share held in September 2017.

The average cost of acquisition of shares by the promoters is Rs.2.55 and Rs. 6.09 per share. Post issue, AVL's current paid-up equity capital of Rs. 3.00 cr. will stand enhanced to Rs. 4.13 cr. With this IPO, the company is looking for a market cap of Rs. 16.50 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AVL has posted turnover/net profits of Rs. 17.32 cr. / Rs. 0.51 cr. (FY18), Rs. 18.34 cr. / Rs. 0.65 cr. (FY19) and Rs. 16.33 cr. / Rs. 0.49 cr. (FY20). It has posted inconsistency in the top and bottom lines.

For the last three fiscals, AVL has posted an average EPS of Rs. 1.87 and an average RoNW of 12.37%. The issue is priced at a P/BV of 2.47 on the basis of its NAV of Rs. 16.19 as on March 31, 2020, and at a P/BV of 1.76 on the basis of post-issue NAV of Rs. 22.68.

If we attribute FY20 earnings on fully diluted post issue equity, then asking price is at a P/E of around 33.61 against the industry average of 10.86, making it a costly offer.

COMPARISION WITH LISTED PEERS:
As per offer documents, AVL has shown Chemtech Industrial as its listed peer. It is currently trading at a PE of 8.05 (as on September 15, 2020 closing). However, it is not fully comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 11th mandate from its stable in the last four fiscals (including the ongoing one). Out of last 10 listings, 1 opened at discount, 1 at par and the rest at premiums ranging from 0.16% to 16.67% on the day of listing.