KPI Global Infra BSE SME IPO review (May apply)

• KP group coming out with second SME IPO after migration of first one to main board.
• KPIG has two verticals of operations i.e. IPP and CPP.
• Company is able to realize Rs. 6.58 per unit from third party PPAs.
• Proposed 25MW project will be fully on stream by July 2019 end.

ABOUT COMPANY:
KPI Global Infrastructure Ltd. (KPIG) is KP Group Company engaged in solar power generation verticals at its 'Solarism' park. First company of the group KP Energy, which came with SME IPO in February 2016, has already migrated to main board in October 2018 and rewarded investors handsomely with two bonus issues during these period. KPIG operates under two verticals i.e. IPP (Independent Power Producer) and CPP (Captive Power Producer). It is also generating income from lease rental of owned land as well as AMC of solar projects. Under IPP vertical it owns project and generates revenue from power supply charges with third party PPA. While under CPP it generates revenue from sale of power plant units to captive consumers and lease rental for land and AMC contracts.

It has 208.42 acres of land for its solar power projects at Solarism Park, Bharuch. For its operational 15MW unit 1 (57.81 acres) it has entered into PPA with companies like Mafatlal Industries, Meghamani Organics, Best Paper Mills etc. Having established proven track record from first unit of 15MW, it is now going for second unit with 25 MW capacities. For the proposed 25MW Unit 2 (96.87 acres) with a capex of Rs. 132.04 crore, it has received term loan from PFC to the tune of Rs. 86 cr. Balance funding it planned from internal accruals and IPO proceeds. It has tied up 15 years PPA with corporate like Larsen & Toubro, UPL Ltd. etc. For unit 2 it has entered into PPA at 7% discount to Discom levy. (This is Rs. 6.58 per unit at present)..

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its ongoing 25MW solar power project and general corpus fund needs, KPIG is coming out with a maiden IPO of 4992000 equity shares of Rs. 10 each at a fixed price of Rs. 80 per share to mobilize Rs. 39.94 cr. Issue opens for subscription on 08.01.19 and will close on 11.01.19. 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 27.63% of the post issue paid up capital of the company. Issue is solely lead managed by Vivro Financial Services Pvt. Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Post issue, promoter's holding will be 60.9%.

Having raised initial equity at par, it issued further equity in the price range of Rs. 40 to Rs. 140 between March 2018 and January 2018 and then at a price of Rs. 70 per share in September 2018. It has also issued bonus shares in the ratio of 1 for 1 in March 2018. Average cost of acquisition of shares by the promoters is Rs. 14.85 per share. Post issue, its current paid up equity capital of Rs. 13.08 cr. will stand enhanced to Rs. 18.07 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KPIG has posted turnover/net profits of Rs. 27.51 cr. / Rs. 7.68 cr. (FY16), Rs. 26.03 cr. / Rs. 8.12 cr. (FY17) and Rs. 31.58 cr. / Rs. 11.41 cr. (FY18). For first half of FY19 it has earned net profit of Rs. 3.87 cr. on a turnover of Rs. 18.21 cr. Thus on pure arithmetic, first half net is much lower. Due to straight line method of depreciation, it has higher differed tax provisions According to management, first half it has lean period due to lower radiation of Sun light. It gets optimum radiation in second half and thus major profits come in this period. Its Solarism Park is situated at the higher radiation location having cool climate.

For last three fiscals it has posted an average EPS of Rs. 8.69 and an average RoNW of 28.05%. Issue is priced at a P/BV of 1.70 on the basis of its NAV of Rs. 47.02 as on 30.09.18 and at a P/BV of 1.43 on the basis of post issue NAV of Rs. 56.14. While on the basis of FY18 workings, asking price is at a P/E of around 12.7, if we annualize latest earnings and attributes it on fully diluted post issue equity then asking price is at a P/E of around 18.7 Management is confident of maintaining the growth pattern as proved by track record of last three fiscals.

COMPARE WITH LISTED PEER:
As per offer document, it has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from this merchant banker. In the past Vivro brought 1 main board and 1 SME IPO that opened at a premium ranging from 20% to 59.6% on the day of listing.