Shreeshay Engineers BSE SME IPO review (Avoid)

Shreeshay Engineers Ltd. (SEL) is a part of DKP group that is engaged in real estate segment in and around Mumbai. SEL is a real estate construction and engineering focused solutions company that has developed around 90,000 sq. ft. of built up real estate vide project(s) named “Kailas Jyoti I” and “Kailas Jyoti II” at Ghatkopar, Mumbai. Over the last few years it has been realigning its business policies and recently increased its focus towards becoming the “EPC” arm of the group; with a view to develop a strong execution track record and goodwill in this segment. SEL believe being an “EPC” focused business line will help garner sustainable business due to group synergy and going forward it will be able to leverage this experience to take EPC orders from other players in the Industry. Recently it has entered into works contract for construction of real estate project “Kailas Nagar”.

To part finance its working capital and general corpus fund needs, SEL is coming out with a maiden IPO of 3600000 equity shares of Rs. 10 each at a fixed price of Rs. 15 per share to mobilize Rs. 5.40 crore. Issue opens for subscription on 09.03.18 and will close on 13.03.18. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 27.27% of post issue paid up capital of the company. Average cost of acquisition of shares by the promoters is Rs. 12.96 and Rs. 13.94 per share. Since inception till August 1999 it raised equity at par and thereafter it raised further equity at a price of Rs. 15 per share in September 2017. It has also issued bonus shares in the ratio of 8 for 10 in the same month. Its paid up equity as on 31.03.17 has enhanced to Rs. 9.60 cr. as on 31.10.17 that will further rise to Rs. 13.20 cr. post issue.

On performance front, SEL has posted turnover/net profits of Rs. 0.11 cr. / Rs. – (0.05) cr. (FY14), Rs. 0.10 cr. / Rs. 0.04 cr. (FY15), Rs. 0.10 cr., / Rs. 0.04 cr. (FY16) and Rs. 0.22 cr. / Rs. 0.16 cr. (FY17). For first seven months ended on 31.10.17 of the current fiscal, it has earned net profit of Rs. 0.15 cr. on a turnover of Rs. 0.29 cr. For last three fiscals it has posted an average EPS of Rs. 1.15 and an average RoNW of 7.90%. Issue is priced at a P/BV of around 1 based on its NAV of Rs. 14.93 as on 31.10.17 and NAV of 15.12 post issue. If we annualize latest earnings and attribute it on the fully diluted equity post issue, then asking price is at a P/E of around 75 against industry composite of 62. Thus issue is priced very aggressively. As per offer document, it has considered Capacite, JMC Projects and Simplex Infra as its listed peers that are trading at a P/Es of around 30, 21 and 20 respectively (as on 07.03.18).

On merchant banker’s front, this is the 26th mandate from its stable. Out of last 10 listings, 4 opened at a discount, 1 at par, 4 with a premium ranging from 2% to 20% and 1 main board IPO with a premium of 73.8% on the day of listing.