Delta Auto NSE SME IPO review (May apply)

•    The company is one of the emerging E-2W and E-3W vehicles with PAN India presence.
•    It posted static top lines for F23 and FY24, but marked boosted profits for FY24.
•    The company is marketing its products under the brand name of “Deltic”.
•    Based on its recent financial performance, the issue appears fully priced.
•    Borrowings of Rs. 11.20 cr. as of October 31, 2024, raise concern.
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
Delta Autocorp Ltd. (DAL) manufactures and sells 2W & 3W EVs using cutting edge components procured from reputed Original Equipment Manufacturers (OEMs) who use design & engineering specifications given by it. The company supplies specific components designed and compatible for vehicles. The Company is operating under the brand name "Deltic”. Specializing in the production of Electric 2W and 3W vehicles, its journey began with the establishment of Delta Autocorp LLP in 2016. It launched its first E-Rickshaws successfully in 2017, and thereafter, it picked up the momentum. 

Furthermore, its Research and Development (R&D) Department has implemented several enhancements, including refining the aerodynamic structure of E-rickshaws for optimal performance even on hilly terrains. Additionally, it has boosted the torque, improved strength & durability by using stronger metallurgy, and improved the gradability to a range of 7 to 10 degrees in E-Rickshaws. These notable advancements contribute significantly to meeting the evolving demands of the market.

After observing market dynamics and adapting to changing customer preferences, it strategically broadened product range to include electric 2W vehicles. The year 2018 saw the commencement of prototype development for electric 2W, and in 2019, it proudly unveiled inaugural electric 2W model. It identified a whitespace in Bharat i.e. tier-2, tier 3 towns of India and beyond where customers wanted an affordable yet sturdy scooter without compromising on the looks. Hence, it launched well designed full scooters suitable to run on Indian roads with high ground clearance, good footboard space, and a large seat at very reasonable price coming at a very pocket friendly price. Moreover, in the interest of longevity, cost efficiency, and customer safety it is transitioning to Lithium Ferro Phosphate (LFP) batteries from Nickel-Manganese-Cobalt (NMC) batteries.

Its commitment to innovation and meeting consumer demands has driven continued success in the market. Over the subsequent years, it has introduced a diverse range of both 3W and 2W electric vehicles. Presently, its product range encompasses electric scooters in the 2W category, along with electric rickshaws, electric loaders, and electric garbage carts in the 3W category along with spare parts and accessories of 2W and 3W like motors, DC-DC Converter, Speedometer etc.

The company is working with a more than 300 strong distribution network spread across 25 states & Union Territories of India with a vision to become a global brand rooted in India with products that are trend setting, cost effective, inspire post sales trust through excellent service, and adhere to practicality over gimmicks with customer obsession. As of October 31, 2024, it had 139 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 4200000 equity shares of Rs. 10 each to mobilize Rs. 54.60 cr. at the upper cap. It has announced a price band of Rs. 123 – Rs. 130 per share. The issue consists 3888000 fresh equity share issue worth Rs. 50.54 cr. (at the upper cap), and an offer for same of 312000 shares worth Rs. 4.06 cr. (at the upper cap). The issue opens for subscription on January 07, 2025, and will close on January 09, 2025. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.47% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 4.42 cr. for expenses on setting up of electric three wheeler fabrication plant and painting plant, working capital, Rs. 21.32 cr. for investment in new product development, Rs. 11.46 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Link Intime India Pvt. Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. GYR Capital Advisor is the syndicate member, and Eureka Stock and Share Broking Services Ltd. is the sub-syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 682 per share in January 2024. It has also issued bonus shares in the ratio of 36 for 1 in July 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.04, Rs. 4.15, and Rs, 9.87 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 11.40 cr. will stand enhanced to Rs. 15.29 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 198.77 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 57.53 cr. / Rs. 4.20 cr. (FY22), Rs. 80.56 cr. / Rs. 5.13 cr. (FY23), and Rs. 81.17 cr. / Rs. 8.22 cr. (FY24- two broker periods). For 7M of FY25 ended on October 31, 2024, it earned a net profit of Rs. 4.81 cr. on a total income of Rs. 45.28 cr. 

For the last two fiscals (FY22 and FY23), the company has reported an average EPS of Rs. 8.69 and an average RoNW of 50.33%. The issue is priced at a P/BV of 6.53 based on its NAV of Rs. 19.91 as of October 31, 2024, and at a P/BV of 2.71 based on its post-IPO NAV of Rs. 47.90 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 24.12. Based on FY24 earnings, the P/E stands at 24.16. The issue relatively appears fully priced. Its borrowings of Rs. 11.20 cr. as of October 31, 2024, raise concern.

For the reported periods, the company has posted PAT margins of 7.36% (FY22), 6.42% (FY23), 7.12%, & 11.03%, (FY24), 10.64% (7M-FY25), and RoCE margins of 43.14%, 49.30%, 10.67% & 40.32%, 19.32%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for any financial year so far. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Wardwizard Innovations, as its listed peer. It is trading at a P/E of 157.0 (as of January 03, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 36th mandate from GYR Capital in the last four fiscals.  From the last 10 listings, all listed with a premiums ranging from 14.07% to 305.44% on the listing date.