Sealmatic India BSE SME IPO review (Apply)

•    SIL has been in the business of designing and manufacturing mechanical seals.
•    The company is the most preferred partner for the critical products manufactured by it. 
•    SIL has posted growth in its top and bottom lines for the reported periods. 
•    It has announced a dividend of 10% for FY22. 
•    Investors may consider an investment with a long-term perspective. 

ABOUT COMPANY:
Sealmatic India Ltd. (SIL) is engaged in the business of designing and manufacturing mechanical seals and associated products. Mechanical seals are mainly used in Oil & Gas, refinery, petrochemical, chemical, pharmaceutical, fertiliser, power, mining, pulp & paper, aerospace, marine and other industries. The company manufactures customized seals to meet the requirement of the client. The company has a complete range of engineered mechanical seals and sealing support systems to cater for the needs of customers located all across the globe. Sealmatic products are globally recognized as a trusted brand in the process industry in over 45 countries, to name a few: USA, UK, Germany, Netherlands, Italy, Sweden, Norway, Switzerland, Denmark, Australia, France, Japan and many more countries.

SIL is in the process of establishing the second most modern unit for its expansion plans.  The said unit when fully functional will increase manufacturing capacity by 60% of the current capacity. The company has been in the business for more than 12 years and the management has more than two decades of experience in the industry. Over the years Sealmatic has been successful in establishing its name in the industry and the company has a strong customer base of domestic as well as foreign clients. The company has about 77% of its total sales from the export of its product and 23% from domestic sales. SIL's client list included bigwigs like Reliance Industries, Indian Oil, BHEL, BPCL, GAIL, NTPC, HPCL, KSB, Sulzer, PDIL, Thyssen Krupp, Tata, etc. As of November 30, 2022, it had 235 employees on its payroll. 

According to the management, it has created a niche place in the market for its products and is the most preferred partner for critical components that are manufactured by SIL. It is going ahead with the expansion to meet rising demand globally for such components. Its turnover has 70:30 ratios for export and domestic revenues and the management is confident of maintaining the ratio going forward. It was permitted to continue its manufacturing activities of the critical component during the pandemic period.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2499600 equity shares of Rs. 10 each via book building route consisting of a fresh equity issue of 1850000 equity shares (Rs. 41.62 cr.) and an offer for sale (OFS) of 649600 shares (Rs. 14.62 cr.). It has announced a price band of Rs. 220 - Rs. 225 per share and mulls raising Rs. 56.24 cr. at the upper cap.  The issue opens for subscription on February 17, 2023, and will close on February 21, 2023. The minimum application to be made is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. After the allocation of 5% for the market maker, the company has allocated 40% for QIBs, 18% for HNIs and 42% for the Retail investors. The issue constitutes 27.62% of the post-IPO paid-up capital of the company. 

From the net proceeds of the fresh issue, it will utilize Rs. 12.00 cr. for the purchase of plant and machinery, Rs. 3.00 cr. for product development, Rs. 11.00 cr. for Marketing and post-sales support, Rs. 4.00 cr. for Provisions and contingency, Rs. 7.16 cr. for working capital and the balance for general corporate purposes. 

ISK Advisors Pvt. Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 46 - Rs. 75 per share in December 2011. It has also issued bonus shares in the ratio of 35 for 1 in September 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 1.28, Rs. 3.40, and Rs. 5.45 per share. 

Post-IPO, SIL's current paid-up equity capital of Rs. 7.20 cr. will stand enhanced to Rs. 9.05 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 203.63 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SIL has (on a consolidated basis) posted a turnover/net profit of Rs. 33.59 cr. / Rs. 4.94 cr. (FY20), Rs. 35.48 cr. / Rs. 6.50 cr. (FY21), and Rs. 42.76 cr. / Rs. 8.41 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 5.43 cr. on a turnover of Rs.25.82 cr. Thus it has posted growth in its top and bottom lines for the reported periods. 

For the last three fiscals, SIL has reported an average EPS of Rs. 10.00 and an average RoNW of 29.31%. The issue is priced at a P/BV of 4.56 based on its NAV of Rs. 49.31 as of September 30, 2022, and at a P/BV of 2.64 based on its post-IPO NAV of Rs. 85.22 per share (at the upper cap). 

If we annualize FY23 earnings and attribute it to the post-IPO, fully diluted paid-up equity capital, then the asking price is at a P/E of around 18.75. Thus, though this issue appears fully priced, it is worth considering as it is a long race horse. 

DIVIDEND POLICY:
The company paid a maiden dividend of 10% for FY22. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from ISK Advisors in the last three fiscals (including the ongoing one). Out of the last 3 listings, all opened at premiums ranging from 1.86% to 41.27% on the day of listing.