Rhetan TMT BSE SME IPO review (Avoid)

•    RTL is engaged in the manufacturing and marketing of TMT and Round Steel Bars.
•    It started generating a net surplus from FY21. FY22 witnessed a sudden boost in margins.
•    The issue is aggressively priced based on its super earnings for FY22. 
•    Two group companies Lesha Ind. And Ashoka Metcast has a languishing performance. 
•    Investors may ignore this IPO being a costly bet. 

ABOUT COMPANY:
Rhetan TMT Ltd. (RTL) is a part of a Gujarat-based diversified business group promoted by Mr Shalin Ashok Shah and his family. The group has business interests in various sectors including Oil and Gas, Steel, Infrastructure, Electronic Equipment, and Chemical Products.

RTL owns and operates a Steel Rolling Mill with an aggregate installed capacity of 30,000 MTPA. It is an IS 1786: 2008 certified company and manufactures TMT Bars and Round Bars, primarily used in the construction industry. Its products have been used to construct dams, bridges, residential and commercial towers, and major infrastructure projects in Gujarat.

The plant is fully geared with the latest technologies to provide good quality steel products and the plant is operating smoothly since 2019.RTL has the vision to become of one the trusted brands in TMT Bars manufacturing. 

As of March 31, 2022, it had 42 employees on the payroll. Apart from this, the company also engage contract labourer to facilitate its manufacturing operations. The group company Lesha Industries Ltd. and Ashoka Metcast Ltd. are already listed on BSE and have languishing performance.  

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for CAPEX (Rs. 12.00 cr.), working capital (Rs. 30.46 cr.), general corporate purposes (Rs. 12.54 cr.), RTL is coming out with a maiden IPO of 8000000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 56.00 cr. The issue opens for subscription on August 22, 2022, and will close on August 25, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 37.65% of the post-IPO paid-up capital of the company. RTL is spending Rs. 1.00 cr. for this IPO process. 

The issue is solely lead managed by Aryaman Financial Services Ltd., Bigshare Services Pvt. Ltd. is the registrar to the issue.  Aryaman Capital Markets Ltd. is also a market maker for this IPO. 

Having raised initial equity at par and the company issued further equity at a price of Rs. 70 per share in January 22 and March 22. The average cost of acquisition of shares by the promoters is Rs. 12.03 and Rs. 70.00 per share. 

Post-IPO, RTL's current paid-up equity capital of Rs. 13.25 cr. will stand enhanced to Rs. 21.25 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 148.75 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, RTL has posted turnover/net profits of Rs. 20.08 cr. / Rs. - (0.58) cr. (FY20), Rs. 52.13 cr. / Rs. 0.13 cr. (FY21) and Rs. 67.03 cr. / Rs. 2.35 cr. (FY22). The sudden boost in margins for FY22 raises eyebrows.

For the last three fiscals, RTL has reported an average EPS of Rs. 0.81 and an average RoNW of - (26.38%). The issue is priced at a P/BV of 4.01 based on its NAV of Rs. 17.46 as of March 2022 and at a P/BV of 1.88 based on its post-IPO NAV of Rs. 37.24 per share. 

If we attribute FY22 higher earnings on post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 63.64 making it an aggressively priced IPO with concern over the sustainability of margins reported. 

COMPARISON WITH LISTED PEERS:
As per the offer document, RTL has shown Incredible Ind., Hariom Pipe, Supershakti Metaliks, and Kamdhenu Ltd. They are currently trading at a P/E of 34.04, 18.20, 23.42, and 17.69 (as of August 16, 2022). However, they are not truly comparable on an apple-to-apple basis. 

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

MERCHANT BANKER'S TRACK RECORDS:
This is the 13th mandate from Aryaman Financial in the last three fiscals (including the ongoing one). Out of the last 10 listings, all opened with premiums ranging from 0.02% to 5% on the day of listing. Thus it has an average track record.