Sungarner Energies NSE SME IPO review (May apply)

•    SEL is engaged in the manufacturing of solar inverters, storage products, power electronics etc.
•    It has posted an average financial performance so far. 
•    Boosted top line with static bottom line raises eyebrows. 
•    A tiny equity capital post-IPO indicates a longer gestation period. 
•    The IPO appears fully priced discounting all near-term positives. 
•    Well-informed investors may park funds for the long term.

PREFACE:
In the arena of madness seen for the SME IPOs, everybody wants to hit when the iron is hot. We have this company i.e. Sungarner Energies Ltd. which is opening its SME IPO on August 21, 2023, but till the eve of August 19, 2023 (at 17.06 hrs.), its prospectus was not available on the designated stock exchange as well as on the website of Lead Manager. This is how things have started taking shape and no compliances are observed. Ultimately it was found on the Company's website to understand the pros and cons of the IPO to present the review. 

ABOUT COMPANY:
Sungarner Energies Ltd. (SEL) at the start of its Journey, was a Design Engineering and Solar EPC company and gradually company also diversified into Manufacturing Power Electronics and Energy Storage Products. Today Sungarner Energies Limited is also into manufacturing Solar Inverters, Online UPS Systems, EV Chargers, and Lead Acid Batteries. Sungarner has also obtained WMI code for the manufacturing of EV Vehicles. 

SEL produces lead acid batteries of varying capacities in the range from 12 Volts 40 ampere-hours to 12 volts 300 ampere-hours. It has already established a distribution network in some of the key markets like Haryana, UP, Bihar, Rajasthan, and Assam. The company today has 6 (six) service Centres in India - Delhi, UP Haryana, Bihar Assam, and Bengal. It is in the process of expanding its footprint further by appointing an additional 500 Franchisees to cover all major Districts of India by the end of 2025. 

Sungarner Solar EPC Division has to date commissioned more than 50 (fifty) large Solar Projects in the last 8 years. Some of the prestigious projects that commissioned are for customers like Interglobe Enterprises, DLF, Jubilant Life Sciences, Eli Lilly, Modi Xerox, V N Dyers and Textiles, The ITC Hotels Delhi, etc.  

It is also an integrated solar energy solutions provider offering engineering, procurement and construction ("EPC") services. Its services include the design, engineering & implementation of solar Off Grid and on Grid Power Plants. As of August 01, 2023, it had 54 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 640000 equity shares of Rs. 10 each at a fixed price of Rs. 83 per share to mobilize Rs. 5.31 cr. The issue opens for subscription on August 21, 2023, and will close on August 23, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes 27.60% of the post-IPO paid-up equity capital of the company. The company is spending Rs. 0.70 cr. for this IPO process and from the net proceeds, it will utilize Rs. 3.50 cr. for working capital and Rs. 1.11 cr. for general corporate purposes. 

Fast Track Finsec Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued/converted further equity shares at a price of Rs. 40 per share between September 2022 and October 2022. It has also issued bonus shares in the ratio of 7 for 4 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 3.64, and Rs. 6.07 per share. 

Post-IPO, SEL's current paid-up equity capital of Rs. 1.68 cr. will stand enhanced to Rs. 2.32 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 19.25 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SEL has posted a turnover/net profit of Rs. 5.36 cr. / Rs. 0.16 cr. (FY21), Rs. 7.98 cr. / Rs. 0.58 cr. (FY22), and Rs. 17.65 cr. / Rs. 0.74 cr. (FY23). The sudden boost in its top line for FY23, a pre-IPO year, raised eyebrows, while its bottom lines presented pressure on margins.  

For the last three fiscals, SEL has reported an average EPS of Rs. 7.36 and an average RoNW of 25.36%. The issue is priced at a P/BV of 4.35 based on its NAV of Rs. 19.09 as of March 31, 2023, and at a P/BV of 2.26 based on its post-IPO NAV of Rs. 36.73 per share. 

If we attribute FY23 earnings to SEL's post-IPO paid-up capital, then the asking price is at a P/E of 25.94. Thus the issue appears fully priced discounting all near-term positives. 

DIVIDEND POLICY:
The company has not declared any dividend so far. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SEL has shown Insolation Energy, Veer Energy, and V Guard Ind. as their listed peers. They are currently trading at a P/E of around 86.83, 13.19, and 74.41 (as of August 18, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Fast Track in the last six fiscals (including the ongoing one). Out of the last 8 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 6.72% to 27.93% on the listing date.