Chamunda Electricals NSE SME IPO review (Apply)

•    The company is providing specialized services of O & M and testing of sub-stations and solar power generation park.
•    It has ongoing O & M contracts worth Rs. 64+ cr.
•    It marked growth in its top and bottom lines, but sudden boost in its bottom lines from FY24 onwards raise eyebrows.
•    Based on its recent financial performance, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Chamunda Electricals Ltd. (CEL) is engaged in the business of providing specialized services of operation and maintenance of substation up to 66 KV (kilovolt), testing and commissioning of electrical substation up to 220 KV (kilovolt) and solar power generation park of 1.5 MW (Megawatts) capacity, and within its scope, it includes erection of EHV class equipments, structures and equipments, earthing, control cable works and other associated works for substations up to 220 KV (D Class). 

CEL’s range of customised service offerings and ability to develop solutions to the specific needs of clients has enabled it to garner prominent clients across industries. Its constant endeavour is to nurture every client relationship to ensure that it translates into a long-term association. It also continually engages with customers to understand their requirements better to be able to provide more holistic services and to identify new areas where it can engage with them.

Looking to the potential growth of renewable energy specifically solar energy in India, the Company has set-up a solar power-generation at Survey no. 1085, Village-Bhatib, Taluka-Dhanera, District-Banaskantha, Gujarat-385310 which has a capacity of 1.5 MW in which the Company has signed a 25-years Purchase Power Agreement with Uttar Gujarat Vij Company Limited. As of December 31, 2024, it had 637 employees on its payroll. The company currently has O & M, testing of 134 sub-stations contracts worth Rs. 64.37 cr.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2919000 equity shares to mobilize Rs. 14.60 cr. (at the upper cap). The issue opens for subscription on February 04, 2025, and will close on February 06, 2025. The company has announced a price band of Rs. 47 – Rs. 50 per share of Rs. 10 each. The minimum number of shares to be applied is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.53% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, the company will utilize Rs. 1.21 cr. for capex on new testing kit and equipment, Rs. 5.50 cr. for working capital, Rs. 2.85 cr.  for repayment of term loans and cash credit, and the rest for general corporate purposes. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd., is the registrar to the issue. Wiinance Financial Services Pvt. Ltd., is the Market Maker for the company. GYR Capital Advisor is a syndicate member, while Eureka Stock & Share Broking Services Ltd. is the sub-syndicate member.

Having issued/converted initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 50 per share in July 2024. It has also issued bonus shares in the ratio of 4 for 10 in March 2017, 0.429 for 1 in December 2018, and 23 for 10 in July 2024. The average cost of acquisition of shares by the promoters is Rs. 1.55, and Rs. 4.13 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 8.09 cr. will stand enhanced to Rs. 11.01 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 55.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 11.32 cr. / Rs. – (0.51) cr. (FY22), Rs. 14.01 cr. / Rs. 0.31 cr. (FY23), and Rs. 20.07 cr. / Rs. 2.44 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 2.82 cr. on a total income of Rs. 18.43 cr. The sudden boost in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 1.87 and an average RoNW of 21.06%. The issue is priced at a P/BV of 3.70 based on its NAV of Rs. 13.52 as of December 31, 2024, and at a P/BV of 2.16 based on its post-IPO NAV of Rs. 23.20 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.66. Based on FY24 earnings, the P/E stands at 22.62. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of – (4.57) % (FY22), 2.24% (FY23), 12.21% (FY24), 15.40% (9M-FY25), and RoCE margins of – (5.49) %, 12.04%, 36.82%, 30.62%, for the referred periods, respectively.

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It has adopted a dividend policy in August 2024, based on its financial performance and future prospects. 

COMPARISION 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 38th mandate from GYR Capital in the last four fiscals.  Out of the last 10 listings, all got listed with premiums ranging from 4.18% to 90% on the date of listings.