Readymix Const NSE SME IPO review (Avoid)

•    The company is engaged in providing engineering solutions for various industries along with related services.
•    It is also offering AMC to its customers post supply of plants/machinery etc.
•    The company marked steady growth in its top lines for the reported periods.
•    The sudden boost in its earnings for FY24 raises eyebrows and concern over its sustainability.
•    Based on FY25 annualized earnings, the issue appears exorbitantly priced.
•    There is no harm in skipping this risky bet.

ABOUT COMPANY:
Readymix Construction Machinery Ltd. (RCML) is an engineering-led company, offering engineering solutions for design, development, fabrication and installation of various plant & machineries along with related equipments like Dry Mix Mortar Plant, Support equipment for Readymix Concrete Plant, High capacity Silos, Artificial Sand Plants (Crusher), Wall Putty Plants, Other Customized Projects etc., catering to industrial requirements of various industries like cement, concrete, crushing, construction and building materials etc. It also provides complete end-to-end turnkey solutions from conceptualization, development, fabrication, assembling, testing, logistic support, final erection and installation of various plant & machineries along with related equipments at customer’s site and other incidental and allied activities related therewith along with after sales services which includes repair & maintenance services.

Further, the company also provides Annual Maintenance Service to customers to close any possible wear and tear, providing updates and upgrades for plant operational software along with scheduled inspection & maintenance visits. Additionally, it provides Business Consultancy Services which includes innovative design, engineering, technology, and operational challenges. From initial concept to final fabrication and commissioning, its solutions help reduce capital costs, improve efficiency, enhance plant performance, and increase automation. RCML also offers online support for equipment installation at customer sites and Recipe Consultancy Services to evaluate ingredient feasibility and optimize recipes. As of December 31, 2024, it had 114 employees on its payroll. It had order book worth Rs. 29.19 cr. as of January 10, 2025.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3062000 equity shares of Rs. 10 each to mobilize Rs. 37.66 cr. (at the upper cap). The issue opens for subscription on February 06, 2025, and will close on February 10, 2025. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. The company has announced a price band of Rs. 121 – Rs. 123 per share of Rs. 10 each. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.94% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, the company will utilize Rs. 5.25 cr. for repayment/prepayment of certain borrowings, Rs. 24.05 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. HEM group’s Hem Finlease Pvt. Ltd., is the Market Maker for the company, as well as a syndicate member. 

After issuing/converting initial equity shares at par value, the company issued bonus shares in the ratio of 16 for 1 in May 2024. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 0.59, Rs. 0.71, and Rs. 0.73 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 7.90 cr. will stand enhanced to Rs. 10.96 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 134.79 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 47.83 cr. / Rs. 1.33 cr. (FY22), Rs. 55.01 cr. / Rs. 2.78 cr. (FY23), and Rs. 69.85 cr. / Rs. 9.29 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 1.04 cr. on a total income of Rs. 35.50 cr. Boosted profits for FY24 raises eyebrows and concern over its sustainability. Rising debtor holding days’ period raises major concern.

For the last three fiscals, the company has reported an average EPS of Rs. 7.33 and an average RoNW of 37.92%. The issue is priced at a P/BV of 4.91 based on its NAV of Rs. 25.07 as of December 31, 2024, but missing its post-IPO NAV data on post-IPO basis.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 96.85. Based on FY24 super earnings, the P/E stands at 14.52. Based on its recent earnings, the issue relatively appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 2.78% (FY22), 5.05% (FY23), 13.30% (FY24), 2.94% (9M-FY25), and RoCE margins of 19.59%, 25.71%, 48.96%, 6.01%, for the referred periods, respectively.

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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 62nd mandate from Hem Securities in the last three fiscals.  Out of the last 10 listings, all listed with premiums ranging from 2.30% to 90.00% on the date of listing.