SM Auto BSE SME IPO review (Avoid)

•    SASL is in the manufacturing of sheet metal auto components.
•    Last the three fiscal it has posted erratic bottom lines.
•    Super profits in pre-IPO year raise concern.
•    The issue is exorbitantly priced around 300 PE.
•    Lead Manager has an average track record.
 

ABOUT COMPANY:
SM Auto Stamping Ltd. (SASL) is one of the auto-component manufacturers located in Nashik catering to the sheet metal components and sub-assemblies requirements of automobile parts/equipment manufacturers. Its range of product primarily covers sheet metal pressed components for clutches, brakes, engine mountings, chassis, shaft drive, body trims, bearings etc. which are used in passenger cars, commercial vehicles and tractors. Other products such as deep drawn components and control panel components also find application in the electrical equipment industry.

SASL has three manufacturing units, all ideally located at Nashik, Maharashtra on leasehold industrial plots of total size admeasuring to over 5000 sq. mtrs. All three units comply with the IATF 16949:2016 standards. Apart from manufacturing, the company also provides job work services in respect of blanking and forming process on metal components. Some of its reputed customers include JBM Auto Ltd., SKF India Ltd., Mahindra CIE Automotive Ltd., Haldex India Pvt Ltd, Reliable Autotech Private Limited and ABB India Ltd. to whom SASL has supplied its products in F.Y. 2018-19 and stub period Apr.'19 - Sept'19.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 5.00 cr.) and general corpus fund needs (Rs. 0.90 cr.),  SASL is coming out with a maiden IPO of 3840000 equity shares of Rs. 10 each at a fixed price of Rs. 18 per share to mobilize Rs.6.91 cr. The issue opens for subscription on 03.03.20 and will close on 05.03.20. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.88% of the post issue paid-up capital of the company. This issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also acting as a market maker for this issue. SASL is spending Rs. 1.01 cr. for the entire IPO process. This indicates that the issue is fully structured.

Having issued/converted initial equity at par, SASL also issued bonus shares in the ratio of 7 for 1 in September 2019. The average cost of acquisition of shares by the promoters is Rs. 1.25 and Rs. 10.00 per share. SASL's current paid-up equity capital of Rs. 10.45 cr. will stand enhanced to Rs. 14.29 cr. post this issue.  Post this issue, SASL is looking for a market cap of Rs. 25.72 cr.

FINANCIAL PERFORMANCE:
For the last three fiscals, SASL has posted turnover/net profits of Rs. 53.36 cr. / Rs. - (1.77 cr.) (FY17), Rs. 65.90 cr. / Rs. 0.74 cr. (FY18) and Rs. 76.30 cr. / Rs. 3.07 cr. (FY19). For the first half of FY20, it has earned a net profit of Rs. 0.04 cr. on a turnover of Rs. 32.22 cr. Thus it has shown erratic levels in bottom lines. The sudden jump in the bottom line for FY19 i.e. pre-IPO year appears window dressings.

SASL has posted an average EPS of Rs. 1.26 and an average RoNW of 11.37% for the last three fiscals. The issue is priced at a P/BV of 1.67 based on its NAV of Rs. 10.77 as on 30.09.19 and at a P/BV of 1.42 based on post issue NAV of Rs. 12.71. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 300 against industry composite of 67 P/E, making it a costly bet.

COMPARISION WITH LISTED PEERS:
As per offer documents, SASL has shown Omax Autos, Rasandik Engg and Autoline Ind as its listed peers. They are currently trading at a P/Es of around 5.72, 0.0 and 0.0 (as on 26.02.20).  However, they are not at all comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 27th mandate from its stable in the last three fiscals (including the ongoing one). Out of last 10 listings, one opened at discount, three at par and the rest with a premium ranging from 0.04% to 6.56% on the day of listing. Thus it has average track records.