RMC Switchgears BSE SME IPO review (Apply)

RMC Switchgears Ltd (RMC) (Formerly known as RFH Metal Castings Private Limited) is one of the largest manufactures for electrical enclosures with manufacturing facilities spread over an area of 8 Lac Sq ft the, only company manufacturing all types of enclosures in Sheet Molded Compound, Deep Drawn, Fabricated and Polycarbonate under one roof. RMC has all the ultra modern automatic machineries from USA, Japan, Germany and Korea to achieve the best quality and uniformity. The company is the approved vendors for all the state electricity utilities and has been receiving orders from them on regular basis. RMC is also approved vendors for the large corporates of India viz. Tatas, L& T, NCC, KEI, IRCON, Drake & Scull etc. It has its own R & D facility with required equipments that helps it to modify the product within small time frame. As claimed by the management, the company has all three types of manufacturing facilities viz. SMC, Polycarbonate and metal under one roof giving it an edge over competitors who have one type of facility only either in metal or SMC or plastic.

For its working capital requirement, general corpus fund and listing of the shares, the company is coming out with a maiden IPO of 1536000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 4.15 crore. Issue consists of fresh equity issue of 768000 shares and offer for sale of the same quantity. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Issue opens for subscription on 28.02.17 and will close on 03.03.17. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Hem Securities Ltd and Link Intime India Pvt Ltd is the registrar to the issue. After initial equity on incorporation till 2002 at par, it issued fresh equity during 2008 to 2014 at a price ranging from Rs. 85 to Rs. 500 per share. It has also issued bonus in the ratio of 3 for 1 in June 2016. As the IPO consists of offer for sale as well as a fresh equity issue on 50:50 basis, its current paid up equity capital of Rs. 4.32 crore will stand enhanced to Rs. 5.09 crore post issue.

On performance front, for last three fiscals it has posted turnover/net profits of Rs. 40.87 cr. / Rs. 0.20 cr. (FY14), Rs. 45.74 cr. / Rs. 0.24 cr. (FY15) and Rs. 55.85 cr. / Rs. 0.79 cr. (FY16). For the first six months of the current fiscal it has earned net profit of Rs. 0.86 crore on a turnover of Rs. 26.10 crore. If we annualize these earnings and attribute it on the equity capital then asking price is at a P/E of around 8 plus against industry composite P/E of 22 plus and the peers trading above 16 plus. .

Considering major spending planned for power sector, this company is set for better prospects going forward.

On merchant banker’s front, this is the 29th mandate from its stable and past mandates have shown mixed trends.

Conclusion: Issue pricing appears reasonable. Cash surplus investors may consider investment for medium to long term rewards.