Emerald Tyre NSE SME IPO review (Apply)

•    The company enjoys niche place in material handling applications related tyres and materials manufacturing and marketing.
•    It has global presence through business partners and fetched Rs. 127.41 cr. export revenue for FY24. 
•    It marked steady growth in its top line with boosted bottom lines from FY22 onwards.
•    Based on FY25 annualized super earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Emerald Tyre Manufacturing Ltd. (ETML) is engaged in the Business of Manufacturing, Supplying and Services for a comprehensive range of tyres for material handling applications like forklifts, skid loaders, ground support equipment of Airports, Port trailers, agri implements, lawn and garden mowers, mining equipment, aerial work platform trucks, backhoe loaders etc. The Company being incorporated in the year 2002, has a renowned presence in the Domestic market as well as Global market for more than two decades in the international market under the brand name "GRECKSTER".

Pursuant to the strong market position in off highway tyre manufacturing industry, its manufacturing unit is operational at Plot No.79 & 80, EPIP Zone SIPCOT Industrial Complex Gummudipoondi, Tiruvallur District Tamil Nadu 601201 spread over 10.05 acres. It has an installed production capacity of 10560 MT of tyres, tubes and wheels. On the date of this Red Herring Prospectus, its product range covers a wide range of off the highway range of tyres. The Company has the flexibility in manufacturing facility to address market requirements.

As a total industrial tyre solution provider, the company offers an integrated product mix to meet di-verse needs of the customers. ETML provides end to end solutions by providing total off highway tyre wheel solutions including Just-In Time delivery. Its comprehensive range caters to various Industrial and material handling Applications. With a commitment to quality, it ensures top-notch solutions tailored to specific requirements, simplifying the procurement process.

Through channel partners, ETML operates in numerous countries, boasting a network of partners globally. Partners undergo meticulous selection based on their expertise in industrial tyre marketing, financial stability, and infrastructure suitability for the market. Identification often occurs at international trade shows where the company showcases products, introducing new offerings to attract users and partners alike.

Subsequently, chosen partners receive comprehensive training in India and WOS officers, covering Emerald's product intricacies, application related concerns, and technical aspects to adeptly address customer enquiries and facilitate informed product selection.

The Company has bolstered service efficiency and OEM engagement by establishing wholly owned subsidiaries in Belgium and UAE. As of July 31, 2024, it had 243 employees on its payroll, and 277 contractual employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 5185200 equity shares of Rs. 10 each to mobilize Rs. 49.26 cr. (at the upper cap). The issue consists of 4986000 fresh equity shares (worth Rs. 47.37 cr. at the upper cap), and an Offer for Sale (OFS) of 199200 shares (worth Rs. 1.89 cr. at the upper cap). The company has announced a price band of Rs. 90 - Rs. 95 per share. The issue opens for subscription on December 05, 2024, and will close on December 09, 2024. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.62% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 36.34 cr. for capex, 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. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 20.00 - Rs. 160.00 per between March 2007 and March 2024. The company issued bonus shares in the ratio of 1 for 1 in November 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 1.99, Rs. 10.72, and Rs. 66.50 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 14.49 cr. will stand enhanced to Rs. 19.48 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 185.03 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 134.70 cr. / Rs. 4.85 cr. (FY22), Rs. 167.98 cr. / Rs. 8.93 cr. (FY23), and Rs. 171.97 cr. / Rs. 12.14 cr. (FY24). For 4M of FY25 ended on July 31, 2024, it earned a net profit of Rs. 4.14 cr. on a total revenue of Rs. 64.93 cr. It posted quantum jump in its top and bottom lines from FY24 onwards. 

For the last three fiscals, the company has reported an average EPS of Rs. 7.22 and an average RoNW of 22.09%. The issue is priced at a P/BV of 2.37 based on its NAV of Rs. 40.12 as of July 31, 2024, and at a P/BV of 1.75 based on its post-IPO NAV Rs. 54.17 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 14.91, and based on FY24 earnings, the P/E stands at 15.22. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 3.63 % (FY22), 5.45 % (FY23), 7.10% (FY24), 6.48% (4M-FY25), and RoCE margins of 11.45%, 16.04%, 17.62%, 5.90% respectively for the referred periods.

DIVIDEND POLICY:
The company declared a dividend of 10% in August 2024 for FY24. It will adopt a prudent dividend policy, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Balkrishna Ind., and TVS Srichakra, as their listed peers. They are trading at a P/E of 32.9, and 41.7 (as of November 29, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 33rd mandate from GYR Capital in the last four fiscals. Out of last 10 listings, all listed with premiums ranging from 16.38% to 305.44% on the listing date.