Lakshya Powertech NSE SME IPO review (Apply)

•    The company is an EPC contracting company providing its services to power generation, oil and gas and related segments.
•    It has posted steady growth in its top and bottom lines for the reported periods. 
•    The sudden boost in top and bottom lines in pre-IPO year raises concern.
•    It has orders worth Rs. 265+ cr. on hand as of August 31, 2024.
•    Based on FY25 super annualized earnings, the issue appears lucratively priced.
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Lakshya Powertech Ltd. (LPL) started as an Engineering Consultancy and Contracting Company, distinguished for its expertise in Mechanical and Electrical services. It embarked as a freelancing consultancy in power generation and rapidly transitioned into a multifaceted entity with a robust expansion into Operations and Maintenance (O&M) for Gas Power Generation. It strategically expanded operations by delving into significant Power Generation Projects, a move that was strengthened by its entry into the Oil and Gas sector. This diversification not only broadened the scope of services but also solidified position in the industry. 

LPL's global reach was further established through an Engineering, Procurement, and Construction (EPC) Contract in Renewables in Malaysia, and its growth extended into the Operations and Maintenance (O&M) of Oil and Gas facilities. The company is predominantly engaged across four key sectors: Oil and Gas, Power, Renewable Energy, and Industrial. Its services are organized into four primary divisions: (i) Engineering, Procurement, Construction & Commissioning; (ii) Integrated Operation & Maintenance Services; (iii) Special Services. Within these segments, it delivers comprehensive solutions tailored to meet the unique needs of clients, ensuring excellence at every stage of project execution.

It has earned distinction in providing Engineering, Procurement, Construction, and Commissioning (EPCC) services, tailored for projects spanning the Oil and Gas, Power, Industrial, and Renewable Energy sectors. In addition to EPCC proficiency, it offers extensive Integrated Operation and Maintenance Services aimed at ensuring the sustained efficiency and longevity of r clients' Assets, further supported by specialized services such as testing & commissioning, overhauls, and refurbishing/retrofitting, ensuring optimal performance across multi-discipline and multi-sector projects and Trading operations. It enters into contracts primarily through a competitive bidding process.

It maintains a vigilant focus on delivering excellence in all aspects of operations and has successfully executed more than 138 projects with major completed projects quantifying to approximately Rs.  268.43 cr. As of August 31, 2024, it had 45 major on-going projects out of which projects worth approximately Rs. 431.99 cr. has been confirmed based on Letter of Allocation / Purchase Order for which Rs. 265.95 cr. worth project execution is pending. As of August 31, 2024, it had 907 employees on its payroll. It also hires contract workers as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2772800 equity shares of Rs. 10 each to mobilize Rs. 49.91 cr. (at the upper cap). The company has announced a price band of Rs. 171- Rs. 180 per share. The issue opens for subscription on October 16, 2024, and will close on October 18, 2024. The minimum number of shares to be applied is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 4.50 cr. for repayment/prepayment of certain borrowings, Rs. 30.00 cr. for working capital, and the rest for general corporate purposes. 

The company has reserved 72000 shares for its eligible employees and offering them a discount of Rs. 15 per share. From the rest, it has allocated not less than 5.34% for market maker, Not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The IPO is solely lead managed by GYR Capital Advisors Pvt. Ltd., and KFin Technologies Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. 

Having issued/converted initial equity shares at par value, the company issued further equity shares at a price of Rs. 5763 per share in February 2024. It has also issued bonus shares in the ratio of 23 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 5.64, and Rs. 5.66 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 7.31 cr. will stand enhanced to Rs. 10.08 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 181.51 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 34.21 cr. / Rs. 1.05 cr. (FY22), Rs. 53.11 cr. / Rs. 2.71 cr. (FY23), and Rs. 149.42 cr. / Rs. 15.68 cr. (FY24). For 5M of FY25 ended on August 31, 2024, it earned a net profit of Rs. 5.97 cr. on a total income of Rs. 58.15 cr. Thus the company has reported steady growth in its top and bottom lines for the reported periods. However, sudden boost in its bottom lines in pre-IPO periods raises eyebrows and concern over its sustainability going forward. It is operating in a highly competitive and fragmented segment. 

For the last three fiscals, the company has reported an average EPS of Rs. 15.37 and an average RoNW of 42.84%. The issue is priced at a P/BV of 3.49 based on its NAV of Rs. 51.58 as of August 31, 2024, but RHP and IPO price band ad is missing its post-IPO NAV data. 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 12.67, and based on FY24 earnings, the P/E stands at 11.58. The issue relatively appears lucratively priced.

For the reported periods, the company has posted PAT margins of 3.06% (FY22), 5.11 % (FY23), 10.58% (FY24), 10.33% (5M-FY25), and RoCE margins of 17.42%, 20.55%, 36.56%, 13.41%, respectively for the referred periods. 

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Asian Energy Services, Engineers India as their listed peers. They are trading at a P/E of 49.4 and 28.4 (as of October 11, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from GYR Capital in the last four fiscals (including the ongoing one).  Out of the last 10 listings, all opened with a premiums ranging from 36.36% to 305.44% on the date of listing.