ATC Energies NSE SME IPO review (Apply)

•    The company is engaged in producing and supplying lithium-ion batteries on a B2B model.
•    It caters to specialized demand with tailor made power solutions that brings higher margins.
•    The company marked lower top and bottom lines for FY23 on account of volatile prices of the raw materials globally.
•    Based on recent financial data, the issue appears fully priced, but holds bright prospects ahead.
•    Investors may park funds for the medium to long term. 

ABOUT COMPANY:
ATC Energies System Ltd. (AESL) produces and supplies of lithium-ion batteries. It provides efficient and low-cost lithium and li-ion batteries by developing a full scale vertically integrated energy storage solutions for various industries and end user such as banking, automobiles etc. Its factories are located at Vasai, Thane and Noida, NCR with latest machines and technology comprising an in-house integrated development and assembling system as well as quality testing infrastructure spread over combined area of around 3,160 sq.mt., wherein a range of customised as well as standardized lithium batteries are made.

The Company is accredited with the certifications - ISO 9001:2015, ISO 14001:2015, ISO 45001:2018, RoHS [Restriction on Hazardous Substances]. It adheres to strict quality control measures during processes to extract full life of the products. Alongside its customer-focused approach, Research and Development team looks for opportunities for next generation and innovative products. The continuous research, development and introduction of latest production technologies of renewable energy storage solutions on a global level by various countries is complementing Company’s future growth story. Tracing the global growth trend, the lithium-ion battery is witnessing healthy demand growth in domestic market too. In 2022, LIB demand in India was estimated at 11GWH. The projected annual demand for Li-ion batteries (LIBs) in India expected grow to 160.3 GWh by 2030, taking the total cumulative demand to 600 GWh by 2030. The largest demand between 2022-30 is projected to come from EV at 381.4 GWh (64%), followed by stationary storage (Grid scale) at 134.2GWh (22%), BTM at 47.3GWh (8%) and consumer electronic at 36.4 GWh (6%). As of February 28, 2025, it had 81 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 5403600 equity shares to mobilize Rs. 63.76 cr. at the upper cap. The company has announced a price band of Rs. 112 – Rs. 118 per share of Rs. 10 each. The issue consists of 4323600 fresh equity shares (worth Rs. 51.02 cr. at the upper cap) and an Offer for Sale (OFS) of 1080000 shares (worth Rs. 12.74 cr. at the upper cap). The issue opens for subscription on March 25, 2025, and will close on March 27, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 9.53 cr. for repayment/prepayment of certain borrowings, Rs. 9.50 cr. for working capital, Rs. 6.72 cr. for Capex on upgradation of Noida factory, Rs. 7.47 cr. for capex on IT upgradation at Noida/Vasai Factory and registered office, and the rest for general corporate purposes. 

The IPO is solely lead managed by Indorient Financial Services Ltd., and KFin Technologies Ltd., is the registrar to the issue. Alacrity Securities Ltd., is the Market Maker for the company. The issue is underwritten to the tune of 15% by Indorient Financial and up to 85% by Alacrity Securities. 

Having issued initial equity shares at par value, the company issued bonus equity shares in the ratio of 50 for 1 in December 2021, and 5.3 for 1 in February 2024. The average cost of acquisition of shares by the promoters is Rs. 0.03 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 16.07 cr. will stand enhanced to Rs. 20.39 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 240.59 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 36.52 cr. / Rs. 11.86 cr. (FY22), Rs. 33.22 cr. / Rs. 7.76 cr. (FY23), and Rs. 51.51 cr. / Rs. 10.89 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 5.77 cr. on a total income of Rs. 22.57 cr. The company has posted inconsistency in its top lines for the reported periods and erratic movements in its bottom lines. 

For the last three fiscals, the company has reported an average EPS of Rs. 6.23 and an average RoNW of 56.99%. The issue is priced at a P/BV of 4.88 based on its NAV of Rs. 24.20 as of September 30, 2024, and at a P/BV of 2.67 based on its post-IPO NAV of Rs. 44.19 per share (at the upper cap). 

If we attribute FY25 annualized earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 20.85. Based on FY24 earnings, the P/E stands at 22.10. The issue relatively appears fully priced.

According to the management, with their rising expertise, they follow B2B mode of business that brings high margin contracts with tailor made solutions in power management. They are getting more and more such jobs under this category, and are confident of maintaining the trends. They are enjoying virtual monopoly in the segment at present and hopes to maintain the lead.

For the reported periods, the company has posted PAT margins of 32.51% (FY22), 23.41% (FY23), 21.27%, (FY24), 25.66% (H1-FY25), and RoCE margins of 103.13%, 42.91%, 42.66%, 16.11% for the referred periods, respectively. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has already adopted a dividend policy in May 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Eveready Ind., High Energy Batteries, as its listed peers. They are trading at a P/E of 27.7, and 42.9 (as of March 20, 2025). However, they are not truly comparable on an apple-to-apple basis. According to the management, Maxvolt and CLN Energy are the nearest listed peers at present and compare to them, the IPO appears reasonably priced.

MERCHANT BANKER’S TRACK RECORD:
This is the 11th mandate from Indorient Financial in the last four fiscals.  From the last 9 listings so far, 1 listed at discount and the rest listed with a premium ranging from 1.16% to 90% on the listing date.