Supershakti Metaliks BSE SME IPO review (May apply)

Supershakti Metaliks Ltd. (SML) forms part of Sai Group which has carved itself into a well known group and established it’s goodwill in iron and steel manufacturing industry. SML is operating a Steel Melting Section with installed capacity of 135000 MTPA to produce semi finished product (i.e. Billet) and Rolling Mill Section with installed capacity of 162000 MTPA to produce Wire Rods, HB Wires, Binding Wires etc.

To part finance its working capital and general corporate fund needs,  SML is coming out with a maiden IPO of 1600200 equity shares of Rs. 10 each at a fixed price of Rs.375 per share to mobilize Rs. 60.01 cr. Issue comprises of offer for sale of 800000 shares and fresh equity issue of 800200 shares. Issue opens for subscription on 17.07.18 and will close on 20.07.18. Minimum application is to be made for 300 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 27.77% of the post issue paid up capital of the company. Its entire equity is the result of scheme of demerger (that happened at par). Average cost of acquisition of shares by the promoters is Rs. 64.61, Rs. 71.96, Rs. 79.89 and Rs. 100.71 per share. Post issue, SML’s current paid up equity capital of Rs. 4.96 cr. will stand enhanced to Rs. 5.76 cr.

On performance front, for last three fiscals, SML has posted turnover/net profits of Rs. 245.67 cr. / Rs. 0.72 cr. (FY16), Rs. 301.02 cr. / Rs. 0.58 cr. (FY17) and Rs. 360.09 cr. / Rs. 12.38 cr. (FY18). Sudden mega jump in bottom line for FY18 is a real wonder for one and all which is a result of adjustments of inventory and other expenses. Issue is priced at a P/BV of 3.41 on the basis of its NAV of Rs. 110.03 as on 31.03.18 and at a P/BV of 2.55 on the basis of post issue NAV of Rs. 146.82. For last three fiscals it has posted an average EPS of Rs. 13.11 and an average RoNW of 12.09% (With the help of superb unbelievable profits for FY18). If we take FY18 earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 17 against industry composite of 14 and thus issue is priced aggressively. As per offer documents, it has shown Adhunik Industries, Gallant Metals and Kamdhenu as its listed peers that are currently trading at a P/Es of around 75, 6 and 32 (as on 10.07.18). Listed peers are strictly not comparable with this company. SML operates in high volume, low margin business. Its debt ratio is 0.41 as on 31.03.18.

On merchant banker’s front, this is the 34th mandate from its stable in last four fiscals and out of last 10 listings, 3 opened at discount, 3 around par and the rest with a premiums ranging from 1% to 6%. Thus it has poor track records.