Shiv Aum Steels NSE SME IPO review (May apply)

    SASL is engaged in the activities of trading in steel products.
    It works as an intermediary between THE manufacturers and THE end users.
    It carries operations at a very thin margin of less than 2%.
    The sector is currently witnessing slowdown and is highly competitive.
    Lead Manager has poor track records.

 
ABOUT COMPANY:
Shiv Aum Steels Ltd. (SASL) is engaged in the trading of mild steel products such as beams, angles, plates, channels, coils and Thermomechanically treated (TMT) bars. The Company operates as a trader, stockist and distributor of steel products. SASL is an authorised distributor for selling steel products of Jindal Steel & Power Limited (JSPL), have entered into MoUs with Steel Authority of India (SAIL) & Rashtriya Ispat Nigam Limited (RINL) and also procure steel products from various other steel manufacturers including Monnet Ispat & Energy Limited (MIEL) and Vandana Ispat Limited (VIL) to name a few, which gives it an exclusive market to trade in high quality and well established brands of steel products. The company deals in various types of steel products like I - Beams, H - Beams, C Channels, Angles, T - Angles, Coils, Plates, etc., all in varied sizes as per the requirement of customers.
 
Thus mainly it plays a connecting role and supports the manufacturers' demand generation activities through trade marketing. Company's operating model represents the indirect sales model and it plays the role of supply chain consolidator between several steel manufacturers and the end-users of the steel products. The key deliverables here are logistics, inventory management, credit and delivery at cost-effective prices to the customers. Thus its business requires stocking of various steel products at dedicated godown and is working capital intensive.
 
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of loans (Rs. 15.10 cr.) and general corpus fund needs (Rs. 0.24 cr.)  SASL is coming out with a maiden IPO of 3600000 equity shares of Rs. 10 each at a fixed price of Rs. 44 per share to mobilize Rs. 15.84 cr. The issue opens for subscription on 19.09.19 and will close on 23.09.19. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. SASL has Rs. 23.96 cr. loans from the promoters (bearing 15% p.a. rate of interest) which will be reduced by Rs. 15.10 cr. from the proceeds of this IPO.
 
The issue is solely lead managed by Aryaman Financial Services Ltd., while Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is acting as a market maker for the issue. SASL is spending Rs. 0.50 cr. to mobilize total issue proceeds. Issue constitutes 26.47% of the post issue paid-up capital of the company. Having issued initial equity at par, it raised further equity in the price range of Rs. 10 to Rs. 110 per share between March 2004 and September 2012. It has also issued bonus shares in the ratio of 1 for 1 in January 2017. The average cost of acquisition of shares by the promoters is Rs.3.51, Rs. 5.00, Rs. 7.59 and Rs. 13.42 per share. Post issue SASL's paid-up equity capital will stand enhanced from Rs. 10.00 cr. to Rs. 13.60 cr.
 
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SASL has posted turnover/net profits of Rs. 249.00 cr. / Rs. 2.93  cr. (FY17), Rs. 277.89 cr. / Rs. 5.46 cr. (FY18) and Rs. 377.29 cr. / Rs. 5.72 cr. cr.  (FY19). For the last three fiscals, it has posted an average EPS of Rs. 5.17 and an average RoNW of 11.97%. The issue is priced at a P/BV of 0.94 on the basis of its NAV of Rs. 46.63 as on 31.03.19 and at a P/BV of 0.96 on the basis of post-issue NAV of Rs. 45.93. If we attribute FY19 earnings on fully diluted equity post issue then asking price is at a P/E of around 10.5 against the industry average of 41. SASL is operating at net margins of below 2% as can be seen from the above financial data.
 
COMPARISION WITH LISTED PEERS:
As per offer documents it has considered SRU Steels as its listed peers. SRU is currently trading at a P/E of around 51 (as on 17.09.19 closing). However, they are not strictly comparable on an apple to apple basis.
 
MERCHANT BANRKET'S TRACK RECORDS:
On merchant banker's front, this is the 34th mandate from its stable in the last three fiscals (including the ongoing fiscal). Out of the last 10 listings, 2 opened at discount and the rest with a premium ranging from 0.09% to 1.92%. Thus it has poor track records so far.