Classic Electrodes NSE SME IPO review

•    The company is engaged in the business of manufacturing welding electrodes and related engineering solutions.
•    It marked growth in its top lines for the reported periods.
•    The sudden boost in its bottom lines from FY24 raise eyebrows and concern over its sustainability, as it operates in a highly competitive segment.
•    Set of FY25 financials considered up to February 28, 2025 only, that is a big surprise.
•    Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
Classic Electrodes (India) Ltd. (CEIL) is engaged in the business of manufacturing welding electrodes and providing engineering solutions to customers both in domestic and international market. The Company has been in existence for (27) twenty-seven years now and provides a wide range of product offerings including General Purpose Electrodes, Low Alloy Electrodes, Low Hydrogen Electrodes, Stainless Steel Electrodes, Hard Facing Electrodes, Cast Iron Electrodes, Non-Ferrous Electrodes, Low Heat Input Electrodes, Cutting and Gauging Electrodes, MiG Wires etc.

The company is focused on alloy and process development, quality and design, which has allowed it to develop products suited to customers’ requirements. It has expertise to design, develop and manufacture complex and specialized industrial equipment and components for OEM’s and end user industries. The company specializes in the manufacturing of general electrodes and MIG wires, which constitute the majority of its turnover. However, trading activities contribute approximately 30-35% of the total revenue. The company procures wire rods, rutile, and other raw materials primarily for captive consumption and when the market opportunities arise, the company sells surplus raw materials, primarily wire rods, to peers and other players in the same industry. 

Wire rods are a critical raw material in electrode manufacturing, and their bulk procurement enables the company to secure volume discounts from suppliers. This strategic advantage allows the company to trade these materials profitably, offering customers reasonable margins. It presently operates from two manufacturing units, out of which Unit I is located in Dhulagarh, West Bengal, and Unit II is located at Jhajjar, Haryana for processing and manufacturing of products. Unit III was also operational at Bahadurgarh, Haryana where manufacturing of electrodes and MiG Wires were undertaken, this unit has recently been closed in FY 2023-2024. Its manufacturing Units are strategically located in west Bengal with availability of all modes of transportation and facilitates convenient transportation of products, sourcing of raw materials and easy access to customers. 

The company apart from producing high-volume General-Purpose Electrodes is involved in production of high-quality special consumable like Low hydrogen, Low Alloy, Stainless steel, Cast Iron, Hard surfacing and Reclamation electrodes. Tailor-made products for specific requirement can also be provided. These special products are being marketed all over India through company's strong distribution network. As of February 28, 2025, it had 95 employees on its payroll. It also hires contract workers as and when required.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4771200 equity shares of Rs. 10 each to mobilize Rs. 41.51 cr. at the upper cap. It has announced a price band of Rs. 82 – Rs. 87 per share. The issue opens for subscription on August 22, 2025, and will close on August 26, 2025. The minimum number of shares to be applied is for 3200 shares and in multiples of 1600 shares, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.56% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 1.48 cr. for capex on plant and machinery, Rs. 10.00 cr. for repayment of certain borrowings, Rs. 16.60 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., while MUFG Intime India Pvt. Ltd., is the registrar to the issue. Winance Financial Services Pvt. Ltd., and Giriraj Stock Broking Pvt. Ltd. are the market maker, with obligation ratio of 75.29% and 24.71% respectively. GYR Capital Advisors Pvt. Ltd. is also a syndicate member, and Intellect Stock Broking Ltd. is a sub-syndicate member.

The company has issued initial equity shares at par value, the company has issued further equity shares in the price range of Rs. 25 – Rs, xx per share between March 2006 and March 2014. It has also issued bonus shares in the ratio of 3 for 2 in May 2024. The average cost of acquisition of shares by the promoters is Rs NIL, Rs. 0.95, Rs. 1.69, Rs. 3.31, Rs. 4.00, and Rs. 10.00 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 13.19 cr. will stand enhanced to Rs. 17.96 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 156.30 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has posted a total income/net profit of Rs. 134.37 cr. / Rs. 1.49 cr. (FY22), Rs. 151.13 cr. / Rs. 2.09 cr. (FY23), Rs. 194.41 cr. / Rs. 12.30 cr. (FY24). For 11M of FY25 ended on February 28, 2025, it earned a net profit of Rs. 9.57 cr. on a total income of Rs. 187.90 cr. The sudden boost in its bottom lines for FY24 raise eyebrows and concern over its sustainability going forward, if we link with its 11M-FY25 net earnings, it shows declining trends. It is operating in a highly competitive and fragmented segment.

For the last three fiscals, the company has reported an average EPS of Rs. 5.38 and an average RoNW of 22.53%. The issue is priced at a P/BV of 2.63 based on its NAV of Rs. 33.05 as of February 28, 2025, but its post-IPO NAV data is missing from its offer documents.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.97. Based on FY24 earnings, the P/E stands at 12.70. Thus, the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.12% (FY22), 1.38% (FY23), 6.34% (FY24), 5.10%, (11M - FY25), and RoCE margins of 7.95%, 9.38%, 25.78%, 17.68%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend, based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown D & H India, Ador Welding, and Diffusion Engg., as their listed peers. They are trading at a P/E of 27.3, 36.7, and 32.6 (as of August 19, 2025). However, they are not truly comparable on an apple-to-apple basis. This comparison appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 45th mandate GYR Capital in the last five fiscals including the ongoing one.  Out of the last 10 listings, 1 opened at par, and the rest with premium ranging from 4.18% to 90.00% on the date of listing. There is perhaps a typo error on page no. 255 for Sacheerome IPO issue price, which is shown as Rs. 12.00 against Rs. 102.00.