Hi-Green Carbon NSE SME IPO review (May apply)

•    HGCL is in the renewable energy segment creating wealth from waste.
•    The company has posted super growth for FY22 and FY23.
•    The company is doubling its capacity with a new unit in Maharashtra.
•    Based on FY23 bumper earnings, the issue appears fully priced.
•    Well-informed investors may park moderate fund for the medium to long term rewards.
 
ABOUT COMPANY:
Hi-Green Carbon Ltd. (HGCL) is a part of Radhe Group Energy, based at Rajkot, Gujarat. Radhe Group of Energy is fast growing private enterprise in the renewable energy sector. The Group's core focus is on Renewable Energy with a diversified balanced portfolio stretching from castings, consumer goods, corporate farming, packaging and herbal products.

The company was established with a mission to create wealth from waste. It is engaged in the business of waste tyres recycling. HGCL's manufacturing plant operates on continuous pyrolysis process. It is an uninterrupted working method with continuous feeding and discharging system controlled by the program logic controller system. The process is fully automatic and requires almost no human intervention. Following continuous pyrolysis, it processes the end-of-life tyres (ELTs) pieces to produce energy components and raw materials. The major products are Recovered Carbon Black (RCB) and Steel Wires under Raw Material Category, Fuel Oil and Synthesis Gas under Energy components category. In order to utilize the energy in efficient manner, it utilizes said synthesis gas, produced as by product of the pyrolysis process, for also manufacturing sodium silicate commonly known as raw glass.

Its production facility at Rajasthan is installed with capacity of recycling of 100 MT waste tyres per day. The company is proposing a new manufacturing plant in Dhule district of Maharashtra, with capacity of recycling of 100 MT waste tyres per day. It has already acquired land admeasuring 21,500 sq. meters for the said purpose. The said expansion will add to the company's existing tyre processing capacity. As of March 31, 2023, it had 32 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of 7040000 equity shares that includes fresh equity share issue of 5990000 shares (Rs. 44.93 cr. at the upper cap) and an Offer for Sale (OFS) of 1050000 shares (Rs. 7.87 cr. at the upper cap). It has announced a price band of Rs. 71 - Rs. 75 per share of Rs. 10 each and mulls mobilizing Rs. 52.80 cr. at the upper band. The issue opens for subscription on September 21, 2023, and will close on September 25, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.17% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 17.83 cr. for setting up of new manufacturing unit at Maharashtra, Rs. 16.54 cr. for working capital and the rest for general corporate purposes. 

As per offer documents, after reserving 420800 shares for market maker, the company has allocated not more than 50% shares for QIBs, not less than 15% shares for HNIs, and not less than 35% shares for Retail investors. 

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Beeline Capital Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par value so far. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 9.80, and Rs. 10.50 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 19 cr. will stand enhanced to Rs. 24.99 cr. At the upper band of the IPO price, the company is looking for a market cap of Rs. 187.43cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HGCL has posted a turnover/net profit of Rs. 24.29 cr. / Rs. 0.10 cr. (FY21), Rs. 51.14 cr. / Rs. 3.68cr. (FY22), and Rs. 79.04 cr. / Rs.10.85 cr. 

For the last three fiscals, the company reported an average EPS of Rs. 3.51, and an average RoNW of 34.66%. The issue is priced at a P/BV of 6.31 based on its NAV of Rs.11.89 as of March 31, 2023, and at a P/BV of 2.78 based on its post-IPO NAV of Rs. 27.02 per share (at the upper cap). 

If we attribute FY23 super earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 17.28. Thus based on its FY23 bumper earnings, the issue appears fully priced. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 19th mandate from Beeline Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with premiums ranging from 0.39% to 85.71% on the day of listing.