Shigan Quantum NSE SME IPO review (Avoid)

•    SQTL is engaged in the manufacturing and marketing of alternate fuel systems.
•    After posting static margins for FY19 to FY21, it has posted a sudden boost.
•    Based on its super earnings in FY22 so far (IPO year), the issue is fully priced. 
•    The segment is crowded and fragmented and most competitive.
•    There is no harm in ignoring this IPO.

ABOUT COMPANY: 
Shigan Quantum Technologies Ltd. (SQTL) is engaged in the business of designing, developing and manufacturing varieties of Alternate Fuel Systems including CNG, LNG and Hydrogen Fuel Kit systems for OEMs and others. It manufactures Alternate Fuel Systems for heavy-duty vehicles, light-duty vehicles and off-highway applications.

Since April 2020, the Company has also ventured into manufacturing of Fire Detection & Alarm System and Fire Detection & Suppression System (FDAS &FDSS). The installed capacity of manufacturing of FDAS & FDSS is 36,000 nos. per annum, however, it has manufactured 671 nos. of FDAS & FDSS as of March 31, 2021.

The company sources critical technologies from MNC companies with whom it has a long term technology user agreement or manufacturing license. SQTL has entered into technology agreements with companies for developing exclusive products customized to its requirements. It enjoys exclusive manufacturing rights in India for these products after their development.

With the change in technologies, it has planned to acquire the Foreign Suppliers' expertise through Joint Venture or by outright purchase of their technologies and localize production of Gaseous Fuel Injection Technology systems. Such Gaseous Fuel Injection Technology systems will enable the Company to manufacture products that will meet the upcoming Emission norms thereby enhancing the performance of the vehicle.

SQTL is engaged in designing, optimizing, manufacturing, assembling, testing and kit integration of alternate fuel systems/kits for heavy/light-duty commercial vehicles and buses, power generation equipment and industrial equipment viz. forklifts etc. It aims to localize the components of Euro-VI CNG kits in India, which will help to reduce the cost of the total system.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for incremental working capital (Rs. 16.81 cr.), purchase of machinery (Rs. 3.95 cr.) and general corporate purpose (Rs. 1.00 cr.), SQTL is coming out with a maiden IPO of 4539000 shares of Rs. 10 each at a fixed price of Rs. 50 per share to mobilize Rs. 22.70 cr. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. The issue opens for subscription on February 28, 2022, and will close on March 03, 2022. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post issue paid-up capital of the company. It will spend Rs. 0.94 cr. for this IPO process. 

The issue is solely lead managed by Finshore Management Services Ltd., and KFin Technologies Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this company. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 41.50 per share in May 2019, and has also issued bonus shares in the ratio of 4 shares for 1 share held in September 2021. The average cost of acquisition of shares by the promoters is Rs. 00, Rs. 2.00, Rs. 6.00 and Rs. 16.67 per share. 

Post-IPO, SQTL's current paid-up equity capital of Rs. 12.68 cr. will stand enhanced to Rs. 17.22 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 86.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SQTL has posted turnover/net profits of Rs. 69.08 cr. / Rs. 2.66 cr. (FY19), Rs. 72.79 cr. / Rs. 2.92 cr. (FY20) and Rs. 96.02 cr. / Rs. 3.51 cr. (FY21). For the first five months of FY22 ended on August 31, 2021, it has earned a net profit of Rs. 2.89 cr. on a turnover of Rs. 64.40 cr.

For the last three fiscals, SQTL has posted an average EPS of Rs. 2.62 and an average RoNW of 23.12%. The issue is priced at a P/BV of 2.03 based on its post-IPO NAV of Rs. 24.66. The company has not given data of its NAV as of August 31, 2021. 

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity, then the asking price is at a P/E of 12.41. Thus the issue is fully priced based on its super earnings for FY22 (IPO year) annualized earnings. Based on its FY21earnings, the issue is priced at a P/E of 24.50. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SQTL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of Prospectus in absence of any dividend policy. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 22nd mandate from Finshore Management in the last four fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 3% to 93.4% on the day of listing. 

The higher return in the case of DJ Media (93.4%) is nothing but an eyewash as it has been posting lower circuits since listing and currently trading at a discount to offer price. It appears that no one could have made any luck with FPO shares allotted due to lower circuits with thin volumes since closer of FPO. Even the market price rigging took place with very thin volume before and around FPO issue time. To please the FPO investors it has also announced bonus shares in the ratio of 1 for 1 in the first week of February 2022. But this could not help it as its price kept sliding even after such a rosy announcement. It is the best case for regulators to make an in-depth study for the excellent market operations.