Sattva Engineering NSE SME IPO review (Not Rated)

•    The company is engaged in providing water resource management solutions.
•    It posted growth in its top and bottom lines for the reported periods.
•    The company has orders on hand worth Rs. 308+ cr. as of March 31, 2025.
•    Based on its recent financial data, the issue appears fully priced. 
•    Well-informed investors may park funds for long term.

ABOUT COMPANY:
Sattva Engineering Construction Ltd. (SECL) is an ISO 9001:2015, ISO 45001:2018 and ISO 14001:2015 certified engineering, procurement and construction (“EPC”) company engaged in the business of providing water resource management solutions which includes the Water Supply Scheme (“WSS”) with underground and overhead tank, Under Ground Sewerage System (“UGSS”), Sewage Treatment Plants (“STP”) and Water Treatment Plants (“WTP”) primarily for government authorities/bodies. It also offers operation and maintenance services for the STP projects as a part of the EPC contract. Under the WSS, the company designs and constructs large underground and overhead water tanks for storage and supply of potable/drinking water along with pump house, laying the pipeline from the water tank and achieving house service connections including electromechanical works.

Under the UGSS, the sewage is drawn through the house service connection, laying the sewage pipeline connected to machine holes (pre-cast or cast-in-situ), collection wells and pump house including other civil structures, electromechanical equipments and instrumentation. Under the STP, it designs, engineers, builds, commissions and operates sewage treatment plant of varying capacities which typically includes construction of inlet chamber, screen and grit chamber, primary clarifier, sequential batch reactor (“SBR”) basin, chlorine contact tank, sludge thickener, digestor, bio-gas tank and other civil structures, electromechanical equipments and instrumentation. Under the WTP, the company designs, engineers, builds and commissions water treatment plant of varying capacities for treatment of river or lake water which typically includes construction of raw water pumping station, inlet chamber, screen chamber, clariflocculator, filter press, rapid gravity sand filter beds, chlorinator and other civil structures, electromechanical equipment and instrumentation.

SECL uses Supervisory Control and Data Acquisition (“SCADA”) system for real-time monitoring of the key performance parameters of projects under Water Supply Scheme, Sewage Treatment Plant and Water Treatment Plant. The system helps in real time monitoring and analysis of various key operating parameters of the plant such as discharge per minute, power consumption and chemical level in reaction process. This system is also connected to the central monitoring system of pollution control board and the customer to enable real time monitoring various parameters and helps in a timely fault detection in the solar plant, which helps the control room at the site take corrective actions. It has also implemented SAP Business One (“SAP B1”) ERP system for better project management and internal controls.

Since incorporation, it has successfully developed more than 50 projects. As of March 31, 2025, its Order Book includes 13 ongoing projects for an aggregate value of approximately Rs. 308+ cr. across different locations. As of March 31, 2025, it had 117 employees on its payroll and additional 280 contract workers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4716800 equity shares of Rs. 10 each to mobilize Rs. 35.38 cr. at the upper cap. It has announced a price band of Rs. 70 – Rs. 75 per share. The issue opens for subscription on August 26, 2025, and will close on August 29, 2025. The minimum number of shares to be applied is for 3200 shares and in multiples of 1600 shares, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.00% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 27.50 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Vivro Financial Services Pvt. Ltd., while MUFG Intime India Pvt. Ltd., is the registrar to the issue. Rikhav Securities Ltd., is the market maker. Vivro Financial Services Pvt. Ltd. is also a syndicate member.

After issuing initial equity shares at par value, the company has issued further equity shares at a fixed price of Rs. 702 per share in September 2024. It has also issued bonus shares in the ratio of 10 for 1 in December 2024. The average cost of acquisition of shares by the promoters is Rs. Nil, Rs. 0.91, and Rs. 1.22 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 12.75 cr. will stand enhanced to Rs. 17.47 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 131.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 83.94 cr. / Rs. 1.04 cr. (FY23), Rs. 77.44 cr. / Rs. 4.56 cr. (FY24), Rs. 94.85 cr. / Rs. 9.14 cr. (FY25). The sudden boost in its bottom lines for FY24 onwards is attributed to company’s strategic move to be a player on its own and grab all contracts for itself, as it got qualified for the same by FY23. This move yielded the desired benefits of high margin with own performance, which was earlier shared with third party. It will follow the new plans and will increase its top and bottom lines in coming years.

For the last three fiscals, the company has reported an average EPS of Rs. 5.36 and RoNW of 21.46%. The issue is priced at a P/BV of 2.20 based on its NAV of Rs. 34.05 as of March 31, 2025 and at a P/BV of 1.66 based on its post-IPO NAV of Rs. 45.11 per share (at the upper cap).

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.34. Based on FY24 earnings, the P/E stands at 28.74. Thus, the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.24% (FY23), 5.89% (FY24), and 9.64%, (FY25), and RoCE margins of 14.08%, 22.14%, 28.58%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It has adopted a dividend policy in April 2025, based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown EMS Ltd., Enviro Infra, Va Tech Wabag, Vishnu Prakash R, and Denta Water, as their listed peers. They are trading at a P/E of 16.7, 24.6, 32.3, 36.7, and 19.4 (as of August 22, 2025). However, they are not truly comparable on an apple-to-apple basis. This comparison appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 8th mandate from Vivro Financial in the last three fiscals including the ongoing one.  Out of the last 7 listings, 1 closed at discount on the listing date.