Gensol Engineering BSE SME IPO review (May apply)

•    GEL is a solar design and engineering and O&M advisory company.
•    It has good clients with repeat orders and contracts.
•    The major thrust for high margin activates boosted its bottom line for the last two fiscals.
•    Order on hand worth Rs. 340 cr. indicates future prospects.
•    This company is purely a service provider company enjoys good margins.

 ABOUT COMPANY:
Gensol Engineering Ltd. (GEL) is a solar design & engineering company with a team of more than 500 employees. It currently provides technical expertise for over 19000+ MW solar projects world over. GEL is a one-stop solution provider across the entire value chain of solar industry. It also undertakes turnkey engineering, procurement and co9nstruction contracts under its EPC business with an international footprint. It has also erected solar power plants of more than 188MW on roofs as well as lands. Its client list includes Zee Group, Greenko Group, GMT, Essel, Mytrah, SunEdition, Adani Green, Govt. of Maharashtra, Hindustan Zink, Soft Bank Energy, Amplus, Sterlite, Axis Bank, PFC, IDBI, SBI, RattanIndia, Carlsberg, Welspun, Suzlon, Tata Power, etc.

Currently, GEL has order book worth Rs. 340 cr. plus and the number is expected to go up as many new project bids are in pipeline. As the government is aggressively pushing solar energy to reach the target of 450GW, issues faced by this sector are being eased in a speedy way.

 ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 13.50 cr.) and general corpus fund needs, GEL is coming out with a maiden IPO via book building route. The company is issuing 2160000 equity shares of Rs. 10 each in a price band of Rs. 81-Rs. 83 to mobilize Rs. 17.50 cr. - Rs. 17.93 cr. (based on lower and upper price bands).  The issue opens for subscription on 30.09.19 and will close on 04.10.19. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.33% of the post issue paid-up capital of the company.

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. while Link Intime India Pvt. Ltd. is the registrar. Gretex Share Broking Pvt. Ltd. is the market maker for this IPO.

Having issued initial equity at par, it raised further equity at a price of Rs. 621 per share in January 2013. It has also issued bonus shares in the ratio of 490 shares for every 1 share held in January 2019. The average cost of acquisition of shares by the promoters is Rs. 0.02 per share. Post this issue GEL's current paid-up equity capital of Rs. 6.04 cr. will stand enhanced to Rs. 8.20 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, GEL has posted turnover/net profits of Rs. 62.32 cr. / Rs. 1.19 cr. (FY17), Rs. 69.64 cr. / Rs. 5.34 cr. (FY18) and Rs. 83.85 cr. / Rs. 6.49 cr. (FY19).  For the last three fiscals, GEL has reported an average EPs of Rs. 8.65 and an average RoNW of 68.47%. Perhaps the company tops the list with the highest RoNW. The issue is priced at a P/BV of 3.85 on the basis of its NAV of Rs. 21.58 as on 31.03.19. If we consider FY19 earnings and attribute it to fully diluted post issue equity of the company, the asking price is at a P/E of around 10.5. Thus issue appears fully priced.

GEL's trade receivables have gone up to Rs. 17.76 cr. for FY19 against Rs. 13.99 cr. for FY18. It intends to increase trade receivable time to 3.26 months against last two fiscal's average of 2.68 months. This raises concern.

COMPARISION WITH LISTED PEERS:
As per offer document, it has shown Zodiac Energy as its listed peer which is trading at a P/E of around 5.7 (as on 19.09.19). However, it is not strictly comparable.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 58th mandate from its stable in the last three fiscals (including the ongoing one). Out of last 10 listings, 1 opened at discount (Suich Ind.) and the rest with premiums ranging from 1.17% to 11.11%on the day of listings.