OBSC Perfection NSE SME IPO review (Apply)

•    The company is engaged in the manufacturing of precision metal components for various industries.
•    It posted steady growth in its top lines and bottom lines. FY24 net margins improved following better cost management and increased product portfolio.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
OBSC Perfection Ltd. (OPL) is a precision metal component manufacturer offering a diversified suite of precision engineering products which are high-quality engineered parts across end-user industries and geographies. It primarily caters to top original equipment manufacturers ("OEMs") who ultimately supply various components and parts to top automotive manufacturing companies of India. In non-automotive sector, the company caters to manufacturers of Defense, Marine & Telecommunication Infrastructure industries. 

At present, its core expertise lies in serving the automotive industry i.e. supplying OEMs, however, it is actively expanding its reach beyond automotive, leveraging capabilities to develop a strong presence in defense, marine, and telecommunication infrastructure sectors. As a result of which, currently, majority of business comes from auto industry and defense, marine, and telecommunication infrastructure sectors forms a small portion of business. It largely supplies to domestic customers, however, it has an international presence also through export sales.

OPL is a part of the Anglian Omega Group, which began operations in 1969 with a single bright bar factory in Faridabad, Haryana. Since then, the group has expanded and diversified into various sectors, including electric mobility, high-tech auto components, infrastructure, supply chain management services, trading, and sports.

OPL operates out of four strategically located manufacturing facilities with three of its manufacturing facilities including principal manufacturing facilities at Pune, Maharashtra, a prominent auto hub i.e. Unit I (principal manufacturing facility), Unit II, Unit IV and one at Chennai, Tamil Nadu, another major automotive centre. This strategic placement allows it to be close to core customers - Original Equipment Manufacturers (OEMs) in the automotive industry. This proximity translates to several advantages, including streamlined logistics, faster response times, and deeper collaboration with valued clients, etc.

The company manufactures a wide range of precision metal components including but not limited to cut blanks, shafts /spline shafts, torsion rods, piston rods, rack bar semi-finished, pinion, drive shafts, gear shifters, cable end fittings, sensor boss, sleeves, push plate, hubs, housing - brass and aluminium, fork bolt, fasteners, connectors, ball pin, ball pin housing, flange, male female ring, dozing adapter, housing for a diversified base of customers.

As on the date of the Red Herring Prospectus, it has a product portfolio of 24 products. It fulfils customer orders through a blend of order book and nomination letter basis. An order book signifies confirmed orders for immediate production of specific products. As on the date of the Red Herring Prospectus, its order book pending execution stands at Rs. 28.05 cr., and it has received nomination letters for Rs. 35.99 cr. As of August 31, 2024, it has been serving 79 customers (majority from Automotive segment). As of September 30, 2024, it had 91 employees on its payroll and additional 644 contract labour in various departments. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6602400 equity shares of Rs. 10 each to mobilize Rs. 66.02 cr. (at the upper cap). The company has announced a price band of Rs. 95 - Rs. 100 per share. The issue opens for subscription on October 22 2024, and will close on October 24, 2024. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 15.42 cr. for capex on its Chennai facility, Rs. 15.17 cr. for capex on Pune facility, Rs. 16.66 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Unistone Capital Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. R K Stock Holding Pvt. Ltd., is the Market Maker for the company. 

The company has issued entire equity capital at par value so far and has also issued bonus shares in the ratio of 5 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 6.39, Rs. 6.67, and Rs. 8.64 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.85 cr. will stand enhanced to Rs. 24.45 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 244.52 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 56.72 cr. / Rs. 3.60 cr. (FY22), Rs. 96.91 cr. / Rs. 4.57 cr. (FY23), and Rs. 116.11 cr. / Rs. 12.21 cr. (FY24). For 5M of FY25 ended on August 31, 2024, it earned a net profit of Rs. 6.03 cr. on a total revenue of Rs. 57.00 cr. Thus the company has reported steady growth in its top and bottom lines for the reported periods. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.61 and an average RoNW of 33.36%. The issue is priced at a P/BV of 4.95 based on its NAV of Rs. 20.22 as of August 31, 2024, and at a P/BV of 2.39 based on its post-IPO NAV of Rs. 41.77 per share (at the upper cap). 

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.89, and based on FY24 earnings, the P/E stands at 20.04. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 6.37% (FY22), 4.75 % (FY23), 10.62% (FY24), 10.67% (5M-FY25), and RoCE margins of 18.45%, 20.07%, 31.49%, 11.83%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. 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 RACL Geartech, and Talbros Automotive, as their listed peers. It is trading at a P/E of 29.2, and 22.6 (as of October 18, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 20th mandate (10 mainboards and 10 SME) from Unistone Capital in the last three fiscals (including the ongoing one).  Out of the last 10 listings, all opened with a premiums ranging from 7.41% to 125.93% on the date of listing.