Mangalam Alloys NSE SME IPO review (May apply)

•    MAL is in the business of melting and processing stainless steel.
•    It posted static top line for FY22 and FY23.
•    Surprisingly, it posted bumper profits for FY23 that raised eyebrows.
•    The sustainability of super margins going forward is a major concern.
•    Well-informed/risk seekers may park funds for the medium to long term.

ABOUT COMPANY:
Mangalam Alloys Ltd. (MAL) is a stainless steel melting and processing company. It has a unique integrated stainless steel, special steel, and higher alloys steel melting and further processing unit i.e. up to bright bar fasteners. The Company is a stainless steel unit manufacturing SS Ingots, Round Bar, RCS, Bright bar, different sections/profiles like square, hex, angle, patti, etc., Forging and making fasteners. It has an integrated stainless steel manufacturing unit covering 40,000 sq. meters of land with an installed capacity of 25,000 TPA (Melting Capacity). 

The company manufactures stainless steel ingots through three furnaces by melting stainless steel scrap, rolling ingots to stainless steel rounds and flats followed by a heat treatment annealing furnace and bright bar unit. MAL has also set up a fastener division to meet the demand for various types of value-added products under the category. As of the date of filing this offer document, it had 370 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 6864000 equity shares of Rs. 10 each at a fixed price of Rs. 80 each to mobilize Rs. 54.91 cr. The issue consists of 6126400 fresh equity shares issue (worth Rs. 49.01 cr.), and an Offer for Sale (OFS) of 737600 equity shares (worth Rs. 5.90 cr.). The issue opens for subscription on September 21, 2023, and will close on September 25, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.81% of the post-IPO paid-up capital of the company. MAL is spending Rs. 4.43 cr. for this IPO process, and from the net proceeds of the fresh equity issue, it will utilize Rs. 27 cr. for working capital, Rs. 5.33 cr. for business expansion, and R & D, and Rs. 12.25 cr. for general corporate purposes.  

Expert Global Consultants Pvt. Ltd. Is the sole lead manager and Skyline Financial Services Pvt. Ltd. Is the registrar of the issue. Rikhav Securities 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. 20 - Rs. 64 between March 1996 and March 2021. It has also issued bonus shares in the ratio of 5 for 4 in March 1995, and 7 for 5 in October 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 6.79, and Rs. 11.22 per share. 

Post-IPO, MAL's current paid-up equity capital of Rs. 18.56 cr. will stand enhanced to Rs. 24.69 cr. ased on the IPO pricing, the company is looking for a market cap of Rs. 197.49 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MAL has posted a total revenue/net profit/ - (loss) of Rs. 271.91 cr. / Rs. - (6.54) cr.  (FY21), Rs. 309.74 cr. / Rs. 5.05 cr. (FY22), and Rs. 308.18 cr. / Rs. 10.14 cr. (FY23). While its top line remained static for the last two fiscals, it posted bumper profits for FY23 that not only raised eyebrows but also concern over sustainability. It appears that the figures for FY23 are cooked up to pave the way for higher valuations. 

For the last three fiscals, the company has reported an average EPS of Rs. 3.05 and an average RoNW of 7.73%. The issue is priced at a P/BV of 1.88 based on its NAV of Rs. 42.58 as of March 31, 2023, and at a P/BV of 1.54 based on its post-IPO NAV of Rs. 51.87 per share. 

If we attribute FY23 super earnings to the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 19.46. The issue appears fully priced with the super profits of FY23.

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

COMPARISON WITH LISTED PEERS:
As per the offer documents, the company has shown Ratnamani Metal, Arfin India, Panchmahal Steel, and India Steel as their listed peers. They are trading at a P/E of 33.27, 63.42, 00, and 00 (as of September 18, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Expert Global in the last two fiscals (including the ongoing one). Out of the last 4 listings, 1 opened at a discount and the rest with premiums ranging from 10.47% to 42.72% of the date of listing. However, the offer document misses some data on page no. 282-283 of the offer documents.