Shri Hare-Krishna NSE SME IPO review (Avoid)

•    The company is primarily in the business of manufacturing and marketing of sponge iron.
•    It posted de-growth in its top and bottom lines for the reported periods.
•    It suffered heavily due to power shortage and higher power cost.
•    It is in the process of setting up its own captive power units.
•    However, considering fully priced offer with declining top and bottom lines, investors may skip it for now.

ABOUT COMPANY:
Shri Hare-Krishna Sponge Iron Ltd. (SHKSIL) is primarily engaged in the business of manufacturing and selling of Sponge Iron. Sponge iron is mainly used as a raw material for steel production in electric arc furnaces and induction furnaces. Through its sponge iron business, the company caters to the metallic requirements of steel producers in selected geographies.

Its manufacturing facility is located in Siltara - Raipur, Chhattisgarh and is spread across an area of around 13.45 acres of land with an annual production capacity of 30,000 metric tonnes. The strategic location of its sponge iron manufacturing facility provides it with access to high-quality iron ore, iron ore pellets, coal and dolomite which are essential raw materials for producing sponge iron. During production of sponge iron, a solid waste is produced as a by-product called dolochar. 

Due to increasing power costs, its manufacturing operations for mild steel ingots, steel shots, grits, and other steel products have been temporarily shut down since 2020. Despite having a well-defined production process and all necessary machinery installed at manufacturing unit, the economic environment has not supported sustained operations. Therefore, it is planning to install a captive power plant on its premises using proceeds from the issue. The installation of the captive power plant will enable us to resume and sustain operations effectively. As of April 30, 2025, it had 92 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5070000 equity shares of Rs. 10 each to mobilize Rs. 29.91 cr. at the upper cap. It has announced a price band of Rs. 56 – Rs. 59 per share. The issue opens for subscription on June 24, 2025, and will close on June 26, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.42% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 23.00 cr. for capex on setting of captive power plant at Siltara-Raipur, and the rest for general corporate purposes. 

The IPO is solely lead managed by Hem Securities Ltd., and KFin Technologies Ltd., is the registrar to the issue. HEM group’s Hem Finlease Pvt. Ltd., is the market maker as well as a syndicate member.

The company has issued initial equity shares at par value, and issued further equity capital in the price range of Rs. 20 – Rs. 80 per share (based on FV of Rs. 10 per share) between March 2004, and March 2012. The average cost of acquisition of shares by the promoters is Rs. 4.02, Rs. 9.42, Rs. 9.72, and Rs. 13.93 per share. per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 14.12 cr. will stand enhanced to Rs. 19.19 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 113.23 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 95.25 cr. / Rs. 10.53 cr. (FY23), Rs. 84.93 cr. / Rs. 10.17 cr. (FY24), Rs. 83.60 cr. / Rs. 9.20 cr. (FY25). It posted de-growth in its top and bottom lines for the reported periods, that remains a major concern. 

For the last three fiscals, the company has reported an average EPS of Rs. 6.90 and an average RoNW of 14.76%. The issue is priced at a P/BV of 1.13 based on its NAV of Rs. 52.11 as of March 31, 2025, but its post-IPO NAV data is missing from offer documents.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 12.31. Based on FY24 earnings, the P/E stands at 11.13. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 11.17% (FY23), 12.37% (FY24), 11.43%, (FY25), and RoCE margins of 26.11%, 19.24%, 14.70%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy, based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Vraj Iron, and Chaman Metallics, as their listed peers. They are trading at a P/E of 12.9, and 39.9 (as of June 20, 2025), However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 76th mandate from Hem Securities in the last three fiscals including the ongoing one.  From the last 10 listings, 1 listed at par and the rest with a premium ranging from 2.30% to 90%, on the listing date.