South West Pinnacle NSE SME IPO Review (Apply)

South West Pinnacle Exploration Ltd. (SWPEL) is providing end-to-end drilling, exploration and allied services to coal, ferrous, non-ferrous, atomic and base metal mining industries and water & unconventional energy industries. Currently the company hs 37 operational rigs and support equipment of different capacities to drill upto a depth of 2500 meters. It also provides consultancy for geological field services and allied services. SWPEL has recently diversified into aquifer mapping for Hydro-geological organizations in India for determining the quantity and quality of groundwater in a particular area, viz – water level, productivity and concentration of various chemicals in groundwater. So far it has completed more than 950000 meters of drilling including 60 CBM exploratory and166 CBM production wells for both Government and Private sectors. At present it has 10 running projects in different states of India.

To part finance its repayment/pre-payment of debt, purchase of machinery, working capital and general corpus fund needs, SWPEL is coming out with a maiden IPO of 4596800 equity shares of Rs. 10 each via book building route with a price band of Rs. 76 - 78 to mobilize Rs. 34.94cr to Rs. 35.86 cr. (based on lower and upper price bands). Issue opens for subscription on 06.02.18 and will close on 08.02.18. Minimum application is to be made for 1600 shares in multiples thereon, thereafter. It has reserved few shares for its eligible employees. Post allotment, shares will be listed on NSE SME Emerge.  Average cost of acquisition of shares by the promoters is Rs. 3 and Rs. 4 per share. Issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 32.95% of post issue paid up capital of the company. From inception till September 2011, it issued equity shares at par. Thereafter, it raised further equity in a price range of Rs. 50 to Rs. 78 per share. It has issued bonus shares in the ratio of 1 for 1 in September 2017. Post issue, its current paid up equity capital of Rs. 9.35 crore will stand enhanced to Rs. 13.95 crore.

On performance front, SWPEL (on standalone basis) has posted turnover/net profits of Rs.52.24cr. / Rs. 2.82 cr. (FY14), Rs. 63.41 cr. / Rs. 2.91 cr. (FY15), Rs. 84.93 cr. / Rs. 3.86 cr. (FY16) and Rs.72.74 cr. / Rs. 6.01 cr. (FY17). For first half of current fiscal, it has earned net profit of Rs. 3.25 cr. on a turnover of Rs. 36.44 cr. Although it suffered a setback in top line for FY17, it posted higher net due to lower finance cost and other expenses.  On consolidated basis it has earned net profit of Rs. 6.11 cr. on a turnover of Rs. 74.75 cr. for FY17 and posted net profit of Rs. 3.27 cr. on a turnover of Rs. 37.32 cr. for first half of current fiscal. On standalone basis it has posted an average EPS of Rs. 5.17 and RoNW of 18.21% on an equity base of Rs. 4.65 crore. Issue is priced at a P/BV of 2.45 based on its consolidated basis NAV of Rs. 31.80 as on 31.03.17. If we annualize latest earnings and attribute it to fully diluted post issue equity, then asking price is at a P/E of around 17 against peer Selan Exploration and Deep Ind. Trading at a P/E of 42 and 9 respectively. Thus pricing appears reasonable.

On merchant banker’s front, this is the 62nd mandate from its stable in last three fiscals. Out of last 10 listings, 1 opened around par and the rest with premiums ranging from 1% to 130% on the day of listing. 130% rewards are from the only main board IPO of this merchant banker i.e. Astron Paper.