Knowledge Marine BSE SME IPO review (May apply)

•    KMEW is engaged in the business of dredging and repair/maintenance of marine crafts.
•    It has posted spectacular growth for the workings of the last 18 months.
•    The orders on hand of Rs. 120 cr. indicate bright prospects ahead.
•    KMEW can be termed as mini Dredging Corp in the offing.
•    The issue appears reasonably priced at a P/E of around 5 and worth considering from a long term perspective.

ABOUT COMPANY:
Knowledge Marine & Engineering Works Ltd. (KMEW) is engaged in the business of owning and operating Marine Crafts for dredging along with repairs and maintenance/refits of Marine Crafts and Marine Infrastructure. The KMEW group started business in the year 2013 under the name Kamal Marine & Engineering Works Private Limited.

Over the years it has become an established player in the small craft business segment in India and has evolved from a small ship-repair unit to a ship-owning Company. Currently, it has an approximate asset value of around Rs. 25 crores and an order book of over Rs. 120 crores (as of the filing of Prospectus).

As a KMEW group, it operates with other 3 (three) companies formed as a special purpose vehicle (SPV) through joint venture agreement to meet the CPC guideline set by the Government of India for large contracts and to secure them for the group's growth. The company handles contracts that involve (A) repairs, refit and renewals of marine crafts, hiring of tug, survey-cum-pilot launch, barges and other marine vessels; (B) dredging at various ports of India; (C)  manning, technical maintenance, operations of marine vessels; and (D) hydrographical and magnetometer surveys.

The group has entered into agreements with International Seaport Dredging Private Limited, Indian Port Dredging Private Limited, Paradip Port Trust, Solitaire Marine & Offshore Private Limited and Visakhapatnam Port Trust for varied services.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for working capital (Rs.7.60 cr.), general corpus funds (Rs. 1.47 cr.), KMEW is coming out with a maiden IPO of 2736000 equity shares of Rs. 10 each at a fixed price of Rs. 37 per share to mobilize Rs. 10.12 cr. The issue opens for subscription on March 09, 2021, and will close on March 12, 2021. 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 26.73% of the post issue paid-up capital of the company. The issue is solely lead managed by Hem Securities Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this company. The company will be spending around Rs. 1.05 cr. for this issue process.

Having issued initial equity at par, KMEW issued bonus shares in the ratio of 2 shares for every 1 share held in October 2020. The average cost of acquisition of shares by the promoters is Rs. 3.33 and Rs. 3.34 per share.

Post issue, KMEW's current paid-up equity capital of Rs. 7.50 cr. will stand enhanced to Rs. 10.24 cr. With the IPO pricing, the company is looking for a market cap of Rs. 37.87 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, KMEW has (On a consolidated basis) posted turnover/net profits of Rs. 10.64 cr. / Rs. 1.44 cr. (FY18), Rs. 10.60 cr. / Rs. 2.71 cr. (FY19) and Rs. 24.18 cr. / Rs. 4.25 cr. (FY20). For the first six months of FY21 ended on September 30, 2020, it has earned a net profit of Rs. 3.80 cr. on a turnover of Rs. 16.34 cr.  

For the last three fiscals, the company has reported an average EPS of Rs. 5.15 and an average RoNW of 39.82%. The issue is priced at a P/BV of 1.98 based on its NAV of Rs. 18.72 as of September 30, 2020, and at a P/BV of 1.57 based on its post-issue NAV of Rs. 23.61.

If we annualize the latest earnings and attribute in on fully diluted equity post issue, then the asking price is at a P/E of around 5.

COMPARISION WITH LISTED PEERS:
As per offer documents, KMEW has shown Dredging Corp as its listed peer which is currently trading at a negative P/E (as of March 05, 2021). However, it is not comparable on an apple to apple basis.

DIVIDEND POLICY:
Despite good earnings, the company has not paid any dividend in the last five fiscals. However, it will consider a prudent dividend policy considering future prospects and performance.

MERCHANT BANKER'S TRACK RECORD:
This is the 29th mandate from its stable in the last four fiscals (including the ongoing one). Out of the last 10 listings, 4 issues opened at par and the rest with a premium ranging from 0.4% to 6.56%. Thus it has an average track record.