Super Iron BSE SME IPO review (Avoid)

•    The company is engaged in the manufacturing and marketing of various types of castings used across the industry and infra projects.
•    While it posted inconsistency in its top lines for the reported periods, the sudden boost in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability.
•    Bumper profits posted for 9M-FY25 appears to be a window dressing to fetch fancy valuations.
•    Based on recent super earnings, the issue appears aggressively priced.
•    There is no harm in skipping this pricey bet that can be termed as “High Risk/Low Return” offer.

ABOUT COMPANY:
Super Iron Foundry Ltd. (SIFL) is in the business of manufacturing municipal castings, ductile iron pipe fittings, ductile iron automotive castings, ductile iron agricultural castings (Rollers and crosskills), railway castings and cast-iron counterweights. The municipal castings are used primarily in roadway construction and these products are used in major construction projects to provide access covers to cover the storm water, sewerage, telecom and other utility networks. 

It is engaged in the business of iron and steel foundry; more particularly in the business of casting and manufacturing of access covers and gully grates used in roadway construction. Its products are used in major construction projects to provide access covers to cover the storm water, sewerage, telecom and other utility networks. The Company manufactures and exports these covers globally, as products are compliant with international standards like EN124. Applications of other product groups manufactured by it are in automotive, agriculture equipment and applications where weight balancing and stability are crucial. SIFL’s production facility is equipped with modern robotic equipment, ensuring quality standards and control, and follows sustainable practices, making us the preferred choice for customers from across the globe giving them a one stop shop solution for all their casting needs.

It mainly exports products to European and Middle Eastern markets. In Europe, the company sells through distributors, wherein it does subcontract manufacturing for the distributors under their brand. The orders for the European business are fairly stable year on year basis, with exception during the period prior to snowfall in European countries, which generally lasts from July till September. Its Middle East business is driven through agents who works in mega projects on behalf of the Company and they typically carry minimal stocks and supply to the projects directly. The Company has successfully given design solutions and castings to various prestigious projects in Middle East like New Hamad Port Project (Qatar), New Turkish Air Base (Qatar), Airport expansion project in Oman, Dubai South developmental project, Lusail FIFA Stadium project, Al Barwah project in Doha to name a few. There is no seasonality in Middle East business except for the month of Ramadan, where construction activities take a dip. It has now diversified product portfolio and produce castings for water pipe networks, railways, counterweights and the agriculture industry.

The company has a diversified marketing network that serves as a robust channel for the promotion and sale of products. As stated above, within B2B framework, it caters to roadway construction and major infrastructure projects to provide access to storm water, sewerage, telecom and other utility networks and casting products are also used in automotive, agriculture equipments and applications where weight balancing and stability are crucial. Its export customers range from municipalities and infrastructure distribution companies in exports and domestic customers include railways and private corporates as well as standalone projects. It manufactures casting products tailor made to the precise specifications of customers’ requirement. It supplies products on a ‘made for order’ basis and also have a long-term supply agreement/ arrangement with Mario Cirino Pomicino SPA, one of the biggest importers in Italy for casting. It has strong long-term relationships with other large clients. The Company has successfully given design solution and castings to various prestigious projects like New Hamad Port Project (Qatar), New Turkish Air Base (Qatar), Airport expansion project in Oman, Dubai South developmental project, Lusail FIFA Stadium project, Al Barwah project in Doha to name a few. Further, the Company is also in the process of participating in the bid to supply its products for several mega projects in Saudi Arabia such as SIDRA and WAFRA package of ROSHN project in Riyadh and Murcia Housing Project. It posted capacity utilization ranging from 35% for FY22 to 23.94% for 9M-FY25. This raises concern. As of December 31, 2024, it had 189 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 6301200 equity shares of Rs. 10 each at a fixed price of Rs. 108 per share to mobilize Rs. 68.05 cr. at the upper cap. The issue opens for subscription on March 11, 2025, and will close on March 13, 2025. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.94% of the post-IPO paid-up capital of the company. The company is spending Rs. 7.81 cr. for this IPO process, and from the net proceeds of the IPO, the company will utilize Rs. 29.00 cr. for working capital, Rs. 16.00 cr. for repayment/prepayment of certain borrowings, and Rs. 15.24 cr. for general corporate purposes. 

The IPO is solely lead managed by Horizon Management Pvt. Ltd., and MUFG Intime India Pvt. Ltd., is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the Market Maker for the company. Horizon Management is also a syndicate member. The issue is underwritten to the tune of 14.99% by Horizon Management and up to 85.01% by Giriraj Stock Broking. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 42 – Rs. 120 per share between March 2011, and August 2024. The average cost of acquisition of shares by the promoters is Rs. 0.04, Rs. 0.07, Rs. 15.00, and Rs. 27.43 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 17.09 cr. will stand enhanced to Rs. 23.39 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 252.65 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 132.31 cr. / Rs. 0.88 cr. (FY22), Rs. 126.23 cr. / Rs. 1.28 cr. (FY23), and Rs. 156.87 cr. / Rs. 3.94 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 9.53 cr. on a total income of Rs. 94.91 cr. The quantum jump in bottom lines for 9M of FY25 not only raises eyebrows, but concern over its sustainability going forward. Current borrowing level of Rs. 110+ cr. also raise alarm.

For the last three fiscals, the company has reported an average EPS of Rs. 1.54 and an average RoNW of 4.58%. The issue is priced at a P/BV of 2.62 based on its NAV of Rs. 41.30 as of December 31, 2024, and at a P/BV of 1.82 based on its post-IPO NAV of Rs. 59.26 per share.

If we attribute FY25 annualized earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 19.89. Based on FY24 earnings, the P/E stands at 63.91. The issue relatively appears aggressively priced.

For the reported periods, the company has posted PAT margins of 0.67% (FY22), 1.03% (FY23), 2.55%, (FY24), 10.92% (9M-FY25), and RoCE margins of 3.53%, 5.44%, 7.53%, 10.93%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Bhagwati Auto, and Universal Auto as its listed peers. They are trading at a P/E of 14.8, and 44 (as of March 07, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 14th mandate from Horizon Management in the last two fiscals.  From the last 13 listings so far, 3 listed at discount, 3 at par and the rest listed with a premium ranging from 8.47% to 141.23% on the listing date.