Kataria Ind. NSE SME IPO review (Avoid)

•    The company is engaged in manufacturing and supply of LRPC strands and steel wires.
•    Recently it diversified into real estate business to increase its income stream.
•    The company has posted average financial performances for the reported periods.
•    Based on FY24 earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this "High Risk/Low Return" issue. 

PREFACE:
Off late we are witnessing half-hearted preparation of offer documents and the approval by the regulatory body also on the similar stance. For this issue, though the quantity of shares offered are definite i.e. 5685000 shares, but based on this, the post IPO paid-up equity capital data is missing from RHP and equity dilution percentage data is missing from the RHP as well as the IPO price band ad. What is more, as per SEBI norms, based on its lot, the issue should have been for 5684400 shares or 5685600 shares. Well, it needs to be clarified by the merchant banker and the approving body. Let us hope that merchant banker does not give excuse for this as typo error.   The following review is based on the info available in RHP and the IPO price band ad.

ABOUT COMPANY:
Kataria Industries Ltd. (KIL) is engaged in the manufacturing and supply of Low Relaxation Pre-stressed Concrete (LRPC) Strands and Steel Wires, Post-tensioning (PT) Anchorage System (Anchor Cone, Anchor Head and Wedges), HDPE Single Wall Corrugated (SWC) Sheathing Ducts, Couplers and Aluminium Conductors. Its wide variety of products are utilized in various sectors including Infrastructure, Roads - Bridges & Flyovers, Metros, Railways, High Rise Buildings, Atomic Reactors, LNG Tanks, Power Transmission & Distribution Lines etc. Its products are certified by ISO 9001:2015 for quality management systems.

KIL has two manufacturing plants, both are situated at Ratlam, Madhya Pradesh. Its plants are well equipped with essential machinery, infrastructure, and an in-house testing facility, which ensures that product conforms to the requisite standards. In the F.Y. 2019-20, it expanded wire division capacity to 19,830 MT from the existing capacity of 7,830 MT. Subsequently, in the F.Y. 2021-22, it had further expanded capacity to 38,000 MT. In the F.Y. 2021-22, the company commenced production of Post-Tensioning Anchorage and SWC Sheathing Duct & Coupler which are used along-with LRPC steel strands.

The Company has Invested in the real estate to diversify income streams. By investing in the real estate Company can generate a steady income through renting spaces. Company had acquired two commercial properties in April 2023 and January 2023 situated in Surat and Vadodara, Gujarat respectively. As of March 31, 2024, it had 71 employees on its payroll. It also has around 200 contract labourers working on behalf of contractors in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5685000 equity shares of Rs. 10 each to mobilize Rs. 54.58 cr. at the upper cap. It has announced a price band of Rs. 91 - Rs. 96 per share. The issue opens for subscription on July 16, 2024, and will close on July 19, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.40% (based on the number of shares to be issued) of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 1.75 cr. for capex on plant and machineries, Rs. 46.00 cr. for repayment of debt, and the rest for general corporate purposes. 

The issue is solely lead managed by Interactive Financial Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. MNM 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. 25 - Rs. 80 per share between June 2005 and February 2016. It has also issued bonus shares in the ratio of 5 for 1 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 0.96, Rs. 8.19, and Rs. 9.34 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 15.85 cr. (15846834 shares) will stand enhanced to Rs. 21.53 cr. (21531834 shares). Based on the upper IPO price band, the company is looking for a market cap of Rs. 206.71 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 250.49 cr. / Rs. 7.38 cr. (FY22), Rs. 333.93 cr. / Rs. 7.78 cr. (FY23), and Rs. 341.49 cr. / Rs. 10.02 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 5.57, and an average RoNW of 22.63%. The issue is priced at a P/BV of 3.43 based on its NAV of Rs. 28.71 as of March 31, 2024, but post-IPO NAV data is missing from IPO price band ad.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 20.65, and based on FY23 earnings the P/E stands at 26.59. Thus the issue appears aggressively priced discounting all near term positives. 

For the reported periods, the company has posted PAT margins of 2.96% (FY22), 2.34% (FY23), 2.95% (FY24), and RoCE margins of 12.23%, 9.31%, 17.40% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Kamdhenu Ltd., Incredible Ind., and Bharat Wire Ropes, as their listed peers. They are trading at a P/E of 29.7, 33.1 and 18.1 (as of July 12, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 19th mandate from Interactive Financial in the last four fiscals (including the ongoing one), out of the last 10 listings, 3 opened at discount, 1 at par and the rest listed with premiums ranging from 2.86% to 71.43% on the date of listing.