Insolation Energy BSE SME IPO review (May apply)

•    IEL is in the business of manufacturing solar panels and modules.
•    It has posted growth in the top line with pressure on margins.
•    Based on its FY22 earnings, the issue appears fully priced. 
•    Cash surplus investors may be considered for the medium to long term.

ABOUT COMPANY:
Insolation Energy Ltd. (IEL) is engaged in the business of manufacturing solar panels and modules of high efficiency of various sizes as per the demand in the market from its fully automatic state-of-the-art 200 MW (Rated Installed Capacity) SPV Module manufacturing unit located at Jaipur, spread in more than 60,000 sq. ft. area with latest the machinery and stringent quality assurance process which delivers quality solar PV modules. 

In addition to the manufacture of solar PV modules, the Company also trades in Solar Power Conditioning Unit (PCU) which uses solar energy and power from the grid to charge batteries and tall tabular Lead Acid Batteries which are used to store energy generated from the solar panels. IEL is also an integrated solar energy solutions provider offering engineering, procurement, and construction ("EPC") services to customers. The company sells its products under the brand name "INA".

In 2020, IEL diversified into the area of Solar Power Pack and successfully launched Solar Tubular / Li-ion Batteries and Solar PCU. These are designed after thorough market inputs and the best available techniques. This Solar Combo offering with adequate storage is fast gaining popularity and helping the home office and home education community in cities, towns and villages. As of the filing of offer documents, it had 146 employees on its payroll and in addition, it had a force of 45 casual labours.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 15.45 cr.), and general corporate purposes, IEL is coming out with a maiden IPO of 5832000 equity shares of Rs. 10 each via book building route with a price band of Rs. 36 - Rs. 38 per share to mobilize Rs. 22.16 cr. (at the upper cap).  The issue opens for subscription on September 26, 2022, and will close on September 29, 2022. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28% of the post-IPO paid-up equity capital of the company. 

The issue is solely lead managed by Holani Consultants Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Holani Consultants Pvt. Ltd. is also the market maker for the company. 

Having issued entire equity shares at par so far, the company has also issued bonus shares in the ratio of 5 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 1.83 per share. 

Post this IPO, IEL's paid-up equity capital of Rs. 15.00 cr. will stand enhanced to Rs. 20.83 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 79.16 cr. (at the upper price band).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IEL has (on a standalone basis) reported a turnover/net profit of Rs. 88.79 cr. / Rs. 3.09 cr. (FY20), Rs. 162.73 cr. / Rs. 6.90 cr. (FY21), and Rs. 215.39 cr. / Rs. 6.92 cr. (FY22). On a consolidated basis, for FY22 it has earned a net profit of Rs. 6.93 cr. on a turnover of Rs. 215.40 cr. 

For the last three fiscals, IEL has posted an average EPS of Rs. 4.18 and an average RoNW of 36.98%. The issue is priced at a P/BV of 2.58 based on its NAV of Rs. 14.75 as of March 31, 2022, and at a P/BV of 1.79 based on its post-IPO NAV of Rs. 21.26 per share. 

If we attribute FY22 consolidated earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 11.41. Thus the issue appears reasonably priced. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, IEL has shown Swelect Energy, Waa Solar, and Websol Energy as their listed peers. They are currently trading at a P/E of 14.2, 10.5, and 00 (as of September 20, 2022). However, they are not truly comparable on an apple-to-apple basis. 

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

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Holani Consultants in the last four fiscals (except 20-21 but including the ongoing one). Out of the last 5 listings, 1 opened at discount, 1 at par, and the rest with premiums ranging from 4.94% to 49.12% on the day of listing.