RBM Infracon NSE SME IPO review (May apply)

•    RIL is engaged in the specialized business engineering execution for Petrochemicals, Cement, Fertilizers, Refineries, etc. 
•    It turned the corner in FY22 and is poised for bright prospects ahead. 
•    Based on its financial data, the issue appears reasonably priced. 
•    It has a good order book worth Rs. 121 cr. 
•    Cash surplus investors may consider investing with long-term perspectives.

ABOUT COMPANY:
RBM Infracon Ltd. (RIL) is engaged in the business of engineering, execution, testing, commissioning operation, and maintenance, particularly in the field of mechanical and rotary equipment for Oil & Gas Refineries, Gas Cracker Plants, Coal/Gas/WHR based Power Plants, Petrochemical, Chemicals, Cement, Fertilizers. The company is a Class-I certified Boiler Repairer / Erector and System /Feed Line fabricator / Erector service provider under Indian Boiler Regulations- 1950.

It provides services in different plants like crude (CDU-VDU), DHDS, FCCU, NHT-CCR, HMU-I & II, VGO -DHDT-ISOM, CPP (Boiler, Piping HT job with IBR coordination), DCU(Coker) Utility, Off-site, RTF (Pit area) dispatch, Rail and Jetty with around 650 Manpower and also involve in ARC maintenance job in RIL-Jamnagar and YARA-Babrala. RIL has executed around 14 Turnaround Shutdowns Job including Mega/Mini Shutdowns in Reliance Industries Limited, Nayara Energy Limited (Formerly Known as Essar Oil Limited) and Yara Fertilisers India Limited & HMEL-Bathinda.

As of September 06, 2022, it has an order pipeline of approx. Rs. 121 cr. and has received a letter of intent for a 3-year servicing contract worth Rs. 200 cr. from Malco Energy (A Vedanta group company). (Refer P90 of the offer document). As of August 31, 2022, it has 2049 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2325000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 8.37 cr. The issue opens for subscription on December 23, 2022, and will close on December 27, 2022. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.54% of the post-issue paid-up capital of the company. RIL is spending Rs. 0.37 cr. for this IPO process. From the residual funds, it will spend Rs. 7.00 cr. for working capital and Rs. 1.00 cr. for general corporate purposes. 

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

Having issued initial equity shares at par, the company issued fresh equity shares at a price of Rs. 134 per share in July 2020 and has also issued bonus shares in the ratio of 10 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 1.65 per share. 

Post-IPO, RIL's current paid-up equity capital of Rs. 6.12 cr. will stand enhanced to Rs. 8.44 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 30.39 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RIL has posted a turnover/net profit -(loss) of Rs. 35.17 cr. / Rs. - (0.12) cr. (FY20), Rs. 38.89 cr. / Rs. - (1.33) cr. (FY21), and Rs. 47.63 cr. / Rs. 1.91 cr. (FY22). For Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 0.65 cr. on a turnover of Rs. 10.27 cr. The sudden boost in its bottom line for the last 15 months raises eyebrows. 

For the last three fiscals, RIL has reported an average EPS of Rs. 0.79 and an average RoNW of 4.64%. The issue is priced at a P/BV of 3.06 based on its NAV of Rs. 11.75 as of June 30, 2022, and at a P/BV of 1.95 based on its post-IPO NAV of Rs. 18.43 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted equity capital, then the asking price is at a P/E of around 11.61 making this issue reasonably priced prima facie, but the sustainability of such margins going forward raises concern. Based on FY22 earnings, the P/E stands at 15.93.

DIVIDEND POLICY:
The company has not paid 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 document, RIL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Beeline Capital in the current fiscal. Out of the last 5 listings, 1 opened at par and the rest with premiums ranging from 3.96% to 63.64% on the date of listing.