Shradha Infraprojects NSE SME IPO review (May apply)

Shradha Infraprojects (Nagpur) Ltd. (SINL) is a real estate development company, engaged in the business of development and sale of residential as well as commercial properties (the “Development Business”) and the development and leasing of commercial properties (the “Lease Business”). Company is primarily operating in Nagpur focused on premium developments with presence in residential, Commercial and hospitality in mixed-use and single-segment developments. Its Development Business spans all activities related to residential real estate development, from the identification and acquisition of land through to the planning, execution and sales of development projects. Our residential properties include plotted developments, houses and apartments of varying sizes. Its Lease Business involves leasing of company’s commercial properties that include corporate offices and educational institutions.

To part finance its plans for investment in Suntech Infra, acquisition of land or land development rights and general corpus fund needs, SINL is coming out with a maiden IPO of 2704000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 18.93 cr. Issue consists of fresh equity issue of 2132000 shares and offer for sale of 572000 equity shares. Issue opens for subscription on 27.11.17 and will close on 30.11.17. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 28.04% of the post issue paid up equity capital of the company. Issue is solely lead managed by Aryaman Financial Services Ltd and Bigshare Services Pvt. Ltd. is the registrar to the issue. Average cost of acquisition of shares by the promoters ranges from Rs. 0.38 to Rs. 4.07 per share. Since inception till March 2000 it issued equity at par. It also allotted equity at par in August 2011. In August 2003 it raised fresh equity at a price of Rs. 200 per share. It has issued bonus shares in the ratio of 25 for 1 in August 2017. Post issue, its current paid up equity capital of Rs. 7.51 crore will stand enhanced to Rs. 9.64 crore.

On performance front, SINL has (on consolidated basis) posted turnover/net profits of Rs. 27.87 cr. / Rs. 8.71 cr. (FY16), Rs. 42.55 cr. / Rs. 4.74 cr. (FY17). For Q1 of current fiscal, it has posted net profit of Rs. 1.49 crore on a turnover of Rs. 5.98 crore. Thus, there is no consistency in its performance. It suffered a setback in bottom line for FY17. It has posted an average EPS of Rs. 8.01 and RoNW of 21.42% for last two fiscals on an equity base of Rs. 0.29 crore. Asking price is at a P/BV of 1.44 on the basis of post issue NAV. If we annualize latest earnings and attribute it on post issue paid up equity capital, then asking price is at a P/E of around 11 against peers trading at a P/E ranging from 13 to 18. Jump in current fiscal’s Q1 net profit is surprising.

On merchant banker’s front, this is the 19th mandate from its stable in past three years. Out of last 10 listings, 2 IPOs opened at a discount to offer price, 1 at par, 5 with premium ranging from 0.15% to 2% and the balance 2 with a premium ranging from 8 to 20%. Thus it has poor track record.

Conclusion: Although pricing is competitive against its peers, cash surplus risk savvy investors may consider investment for long term in this region centric infra Sector Company.