Shri Balaji Valve BSE SME IPO review (May apply)

•    SBVCL is in the business of manufacturing various type of ready to assemble valve components catering to varied industries. 
•    It offers tailor made products as per the requirements of customers.
•    The company posted steady growth in its top and bottom lines.
•    It outperformed from FY23 onwards, but raise concern over the sustainability of margins.
•    Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Shri Balaji Valve Components Ltd. (SBVCL) is engaged in the business of manufacturing of ready to assemble valve components catering to manufacturing of the valves which are used in different industries and in different size depending on the customer's specifications. It manufactures and supplies various types of valve components which are used in manufacturing of ball valves, butterfly valves and other valve including forging products. 

SBVCL's valve components are used to manufacture valves which serve industries which are in different sectors. It is into machining of components and delivering 'Ready to assemble' valve components according to customers designs and specifications. Currently, the company is operating from its 2 manufacturing facilities located at Pune, Maharashtra. One of its manufacturing facilities is located at Bhosari, Pune which is equipped with the forging capabilities and heat treatment capabilities, the second manufacturing facility is located at Chakan MIDC, Bhamboli, Pune which undertakes the machining work. 

Most of valves components are made as per the requirements specified by our customers'. Over the years, its valve components have proved suitable and safe for many operations requirements. The company manufactures valve components using the forging method, bar routing method and casting methods. In case of any casting products, it generally gets the casts manufactured from the customers nominated vendors or outsourcing. The use of methods depends upon the manufacturing plans, customer requirements, component manufactured, material complexity etc.

During the last 3 years it has exported valve components to different countries namely Dubai, Germany, Singapore, Taiwan, Italy, South Africa, USA, United Kingdom, Qatar & Pennsylvania. As of June 30, 2023, it had 168 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 2160000 equity shares of Rs. 10 each. It has announced a price band of Rs. 95 - Rs. 100 per share and mulls mobilizing Rs.21.60 cr. at the upper cap. The issue opens for subscription on December 27, 2023, and will close on December 29, 2023. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 8.05 cr. for capital expenditure for additional plant and machinery installation, Rs. 7.50 cr. for working capital and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company issued entire equity shares at par value so far and has also given bonus shares in the ratio of 599 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 0.02, and Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 8.16 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 81.60 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit/-(loss) of Rs. 16.17 cr. / Rs. - (0.03) cr. LL(FY21), Rs. 39.06 cr. / Rs. 1.53 cr. (FY22), and Rs. 62.94 cr. / Rs. 6.43 cr.(FY23).  For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 1.85 cr. on a total revenue of Rs. 16.55 cr. It posted boost in its top and bottom lines from FY23 onwards. 

For the last three fiscals, it has reported an average EPS of Rs. 6.21 and an average RoNW of 76.12%. The issue is priced at a P/BV of 6.15 based on its NAV of Rs. 16.26 as of June 30, 2023, but its IPO price band ad is missing its post-IPO NAV data on the lower and upper cap. 

If we annualize FY24 super earnings and attribute it to post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 11.04. Thus the issue appears fully priced. The sustainability of margins reported post FY23 raise concern. 

For the reported periods, the company has posted PAT margins of 00 (FY21), 3.95% (FY22), 10.33% (FY23), 11.91% (Q1-FY24), and RoCE margins of 1.01%, 8.17%, 26.47%, 7.29% respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. 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:
This is the 36th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, all listed at premiums ranging from 10.57% to 125% on the day of listing.