Solex Energy NSE SME IPO review (May apply)

Solex Energy Ltd. (SEL) is engaged in providing renewable energy solutions, specialized in the manufacturing of Solar photovoltaic module, solar home light, solar street light, solar lantern, solar power plant, solar invertors, solar water heating systems and wood fired water heater etc. It also provides the offered appliances in numerous specifications and customization in accordance with the demands of customers. Solex Energy Limited is an ISO 9001:2015 Certification, ISO 14001:2015 Certification, OHSAS 18001:2007 and CE MARK CERTIFIED offering systems of high quality and reliability. Solex modules are TUV certified & tested by the UL India Pvt. Ltd and comply in accordance with the standards. SEL’s products ranges from Solar PV Module (3WP - 325 WP), Solar Lanterns (CFL & LED Base), Solar Home Light System (CFL & LED Base), Solar Street Light System (CFL & LED Base), Solar Off-Grid Power Plant (Solar Rooftop Systems), Solar Grid Connected Power Plant, Solar Water Heater Flat Plant Collector, Solar Water Heater ETC Type, Solar Submersible Pump (AC & DC), Solar Surface Pump (DC). It also provides solution for solar roof top system, solar home and rural lighting system, solar power pack and solar power plant. SEL products are eligible for Subsidy from Government which is reduced from sales value during the sale of Product and thereafter release to the Company directly from Government.

To part finance its working capital and general corpus fund needs, SEL is coming out with a maiden IPO of 1380000 equity shares of Rs. 10 each at a fixed price of Rs. 52 per share to mobilize Rs. 7.18 crore. Issue opens for subscription on 22.01.18 and will close on 25.01.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Issue constitutes 27.94% of the post issue paid up capital of the company. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Swastika Investmart Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Average cost of acquisitions of shares by the promoters is Rs. 6.25 per share. Company’s entire equity is issued at par and it has also issued bonus shares in the ratio of 3 for 5 shares in September 2017. Post issue its current paid up equity capital of Rs. 3.56 crore will stand enhanced to Rs. 4.94 crore.

On performance front, SEL posted turnover/net profits of Rs. 6.37 cr. / Rs. 0.10 cr. (FY15), Rs. 46.62 cr. / Rs. 0.39 cr. (FY16) and Rs. 34.50 cr. / Rs. 0.92 cr. (FY17). For last three fiscals it has posted an average EPS of Rs. 2.49 and average RoNW of 20.88% on an equity base of Rs. 2.23 crore. For first four months of the current fiscal, it has earned net profit of Rs. 0.31 crore on a turnover of Rs. 6.35 crore. Company has preferred to give four months’ working instead of first half and is surprising. It has shown inconsistency in top and bottom lines for all these years. Issue is priced at a P/BV of 4.71 based on its NAV of Rs. 11.04 as on 31.07.17 and at a P/BV of 2.31 based on post issue NAV of Rs. 22.49. If we annualize latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 27 plus making this issue aggressively priced. As per offer documents, SEL is considering Swelect as its peers which is currently trading around 17 P/E.

On merchant banker’s front, this is the 11th mandate from its stable in last three fiscals. Last 10 listings have opened with a rewards ranging from 1 to 20% on the issue price in opening on the listing day.

Conclusion: Considering highly priced offer, cash surplus risk savvy investors may consider moderate investment for long term. (Other – apply at your own risk).