Sona Machinery NSE SME IPO review (May apply)

•    SML is in the business of manufacturing and marketing of agro processing equipments and related services.
•    The company is setting up new unit to expand its capacities.
•    The company marked growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for medium to long term rewards. 

ABOUT COMPANY:
Sona Machinery Ltd. (SML) is a diversified agro-processing equipment manufacturer, manufacturing equipments for the processing of rice, pulses, wheat, spices, Barnyard Millet etc. Its product portfolio includes Grains Pre-Cleaner machines, Rotary Drum Cleaner, Vibro Classifiers, Stone Separator Machines, Paddy De-Husker, Husk Aspirator, Rice Thick/Thin Grader, Rice Whitener, Silky Polisher, Multi Grader, Length Grader, Belt Conveyer, Bucket Elevator etc. along with the complete projects for rice mills and ethanol distilleries.

Its services encompass engineering, erection, supervision, and machine commissioning, delivering a comprehensive end-to-end solution for the milling section which includes grain unloading and milling solution up to pre-masher for ethanol distilleries and paddy unloading to rice packaging for rice mill industries. The company's product portfolio comprises of various equipments including support services for all the equipments manufactured and supplied by the company. 

As on the date of this Red Herring Prospectus, it is manufacturing and supplying agro-processing equipments under various categories like cleaning, grading, blending, material handling etc. Currently, it has a manufacturing unit situated at Ghaziabad, Uttar-Pradesh with a total area of approx. 52,205 sq. ft. and a warehouse for storage of material and finished goods. As of September 30, 2023, it had 390 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3624000 equity shares of Rs. 10 each (worth Rs. 51.82 cr. at the upper cap). It has announced a price band of Rs. 136 - Rs. 143 per share. The issue opens for subscription on March 05, 2024, and will close on March 07, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.41% of the post-IPO paid-up capital of the company. From the net proceeds of the equity issue, it will utilize Rs. 28.91 cr. for setting up of a new manufacturing unit at Ghaziabad, Rs. 2.01 cr. for repayment of outstanding amount of the Letter of Credit availed by the company for purchase of machinery, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Maashitla Securities Pvt. Ltd. is the registrar of the issue. Hem Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has also given bonus shares in the ratio of 100 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, and Rs. 0.03 per share

Post-IPO, company's current paid-up equity capital of Rs. 10.10 cr. will stand enhanced to Rs. 13.72 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 196.25 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 6.06 cr. / Rs. 0.28 cr. (FY21), Rs. 44.53 cr. / Rs. 3.27 cr. (FY22), and Rs. 81.18 cr. / Rs. 7.68 cr. (FY23). For 8M of FY24 ended on November 30, 2023, it earns a net profit of Rs. 6.48 cr. on a total income of Rs. 62.88 cr. Thus its top and bottom lines posted growth for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 4.93, and an average RONW of 76.19%. The issue is priced at a P/BV of 8.11 based on its NAV of Rs. 17.63 as of November 30, 2023, and at a P/BV of 2.82 based on its post-IPO NAV of Rs. 50.73 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 20.19.  The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 4.60% (FY21), 7.33% (FY22), 9.49% (FY23), 10.32% (8M-FY24), and RoCE margins of 81.47%, 77.56%, 80.20%, 46.61% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared 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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 41st mandate from Hem Securities in the last three fiscals, out of the last 10 listings, all opened at premiums ranging from 8.57% to 125% on the date of listing.