Promax Power BSE SME IPO review (May apply)

•    PPL is engaged in power projects related contracts on an EPC work basis.
•    Financial details of the company are not transparent on EPS and RoNW data. 
•    It has posted a lower net on the higher top line for FY21.
•    Though the issue is at par, it is at a high P/E.
•    Cash surplus/risk seekers may consider an investment. 

ABOUT COMPANY:
Promax Power Ltd. (PPL) took over the business of Promax Technologies (a proprietorship concern run by the main promoter) and formed this company in the year 2017. It is into undertaking of EPC projects (Engineering, Procurement and construction) of Electric substation & Transmission line, Power distribution, Hydro, Solar power stations etc. Till FY19 there were no major activities. It started its operation in FY20. Besides EPC works for power and solar, the company also provides turnkey execution of civil infrastructure projects like Industrial buildings, Water Infrastructure etc. As of March 31, 2021, it had an order book of Rs. 109.25 cr. in different stages of implementation. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 1.22 cr.) and general corporate purpose (Rs. 0.10 cr.), PPL is coming out with a maiden IPO of 1600000 equity shares of Rs. 10 each at par to mobilize Rs. 1.60 cr. The issue opens for subscription on September 30, 2021, and will close on October 04, 2021. Minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.67% of the post issue paid-up capital of the company. PPL will be spending Rs. 0.28 cr. for this IPO process. As of the date of filing of the final prospectus, the company has on roll 49 employees including management.

The issue is solely lead managed by Finshore Management Services Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. will be the market maker for this issue.

The company has raised entire equity at par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post issue, PPL's current paid-up equity capital of Rs. 4.40 cr. will stand enhanced to Rs. 6.00 cr. Based on IPO pricing, the company is looking for a market cap of Rs. 6.00 cr. 

FINANCIAL PERFORMANCE:
On the financial performance part, for the last two years, PPL has posted revenue/net profits of Rs.7.76 cr. / Rs. 0.31 cr. (FY20) and Rs. 36.89 cr. / Rs. 0.18 cr. (FY21). 

For the last three fiscals, PPL has posted an average EPS of Rs. 105.01 and an average RONW of 34.10%. These data are misguiding as its FY19 and FY 20 EPS is calculated on Rs. 1 lakh equity base while FY21 EPS is on Rs. 4.40 cr. equity. The issue is priced at a P/BV of 0.90 based on its NAV of Rs.11.11 as of March 31, 2021, and at a P/BV of 0.92 based on its post-issue NAV of Rs. 10.82. 

If we attribute FY21 earnings on fully diluted post issue paid-up equity capital, then the asking price is at a P/E of around 33.33 making it an aggressively priced issue.

DIVIDEND POLICY:
The company has not declared any dividend for the period covered in the restatement of accounts as per the offer documents. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, PPL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 17th mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 1 at par and the rest with premium ranging from 1.63% to 20% on the day of listings.