Bondada Engineering BSE SME IPO review (Apply)

•    BEL is an integrated infrastructure company providing EPC and OM services.
•    For the last three fiscals, it posted growth in its top and bottom lines. 
•    As of March 31, 2023, it had orders on hand worth Rs. 1520 cr. 
•    Based on FY23 earnings, the IPO is lucratively priced. 
•    Investors may park funds for medium to long-term rewards. 

ABOUT COMPANY:
Bondada Engineering Ltd. (BEL) is an integrated infrastructure company engaged in the business of providing Engineering, Procurement and Construction (EPC) services and Operations and Maintenance (O & M) services on a Pan India basis to customers operating in the Telecom and Solar Energy industry. BEL provides passive telecom infrastructure services. To date, the company has installed over 11600 telecom towers and poles out of which 7700+ towers and poles were installed in the last three fiscals. 

The company also provides O&M services to solar energy customers which include testing and cleaning of solar panels, repair and replacement of damaged components and inspection of solar panels. It also supplies building materials such as Autoclaved Aerated Concrete (AAC) blocks, jointing mortar and ready plaster through its SITPL.

Through its other subsidiary BAPL, it supplies Un-Plasticized polyvinyl chloride ("uPVC") products such as doors and windows. As of March 31, 2023, it had 564 permanent employees and 270 contract labourers. The company has an order on hand worth Rs. 1520 cr. as of March 31, 2023, that included Rs. 1415 cr. orders for telecom and Rs. 105 cr. orders for the solar energy sector.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5696000 equity shares of Rs. 10 each at a fixed price of Rs. 75 per share to mobilize Rs. 42.72 cr. The issue opens for subscription on August 18, 2023, and will close on August 22, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.37% of the post-IPO paid-up capital of the company. BEL is spending Rs. 2.31 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 35.00 cr. for working capital, and Rs. 5.41 cr. for general corporate purposes.

Vivro Financial Services Pvt. Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker of the company. 

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 1952 per share in February 23 and March 23. It has also issued bonus shares in the ratio of 18 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.30, and Rs. 0.53 per share. 

Post-IPO, BEL's current paid-up equity capital of Rs. 15.91 cr. will stand enhanced to Rs. 21.60 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 162.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a turnover/net profit of Rs. 288.32 cr. / Rs. 9.21 cr. (FY21), Rs. 334.21 cr. / Rs. 10.14 cr. (FY22), and Rs. 370.96 cr. / Rs. 18.25 cr. Due to higher margin realization on Solar Power related activities, it was able to mark growth in bottom lines for FY23. 

For the last three fiscals, BEL has reported an average EPS of Rs. 8.87 and an average RoNW of 20.43%. The issue is priced at a P/BV of 1.52 based on its NAV of Rs. 49.27 as of March 31, 2023, and at a P/BV of 1.34 based on its post-IPO NAV of Rs. 56.06 per share. Its PAT margins improved from 3.19% (FY21) to 4.92% (FY23) and RoCE improved from 28.71% (FY21) to 35.63% (FY23). 

If we attribute FY23 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 8.88. Thus the issue is lucratively priced. 

DIVIDEND POLICY:
The company paid a dividend of 20% for FY22 and 1.20% for FY23. It will adopt a prudent dividend policy post-listing, 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:
Vivro Financial had no mandate for the primary market during the last three years. Hence there is no track record for the said periods.