Swastika Castal BSE SME IPO review (May apply)

•    The company leads in aluminium casting and manufacturing.
•    It marked growth in its top and bottom lines for the reported periods.
•    The sudden boost in its bottom line for FY25 raise eyebrows and concern over its sustainability.
•    Based on its recent financial data, the issue appears aggressively priced.
•    Small post-IPO equity base indicates longer gestation period for migration.
•    Well-informed/cash surplus investors may park moderate fund for long term.

ABOUT COMPANY:
Swastika Castal Ltd. (SCL) has established itself as a leader in aluminum casting and manufacturing through its diverse production capabilities. The company employs several specialized casting processes to meet varying industrial requirements. Its sand-casting operations handle High weight and Integrated casting production, capable of manufacturing components up to 250 kgs. This traditional method excels in creating complex shapes and intricate designs using specially prepared casting sand moulds, making it particularly effective for one-off productions.

The company's gravity casting (permanent mold casting) facility produces components up to 80 kgs, offering superior surface finish and dimensional accuracy. This process uses reusable metal molds and relies on gravity for cavity filling, ensuring consistent quality in precision components. The Company specialize in centrifugal casting process handles can handle weights up to 70 Kgs. This specialized technique employs rotating molds to achieve uniform metal distribution, resulting in exceptional density distribution and mechanical strength.

The company boasts an in-house heat treatment facility, which plays a pivotal role in enhancing product quality and ensuring precise mechanical properties. This facility allows the company to have complete control over the heat treatment process, resulting in improved efficiency, reduced lead times, and superior dimensional stability of components. By eliminating the need for outsourcing, the company achieves cost-effectiveness while maintaining stringent quality standards.

In addition to its in-house capabilities, the company collaborates with a robust vendor base approved by its customers for surface treatment processes. This network ensures access to specialized surface finishing techniques, further enhancing the durability and performance of its products. As of the date of this offer document, it had 79 employees (including 48 contract workers).

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 2164000 equity shares of Rs. 10 each at a fixed price of Rs. 65 per share to mobilize Rs. 14.07 cr. The IPO opens for subscription on July 21, 2025, and will close on July 23, 2025. The minimum application to be made is for 4000 shares and in multiple of 2000 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.51% of post-IPO paid-up equity capital of the company. The company is spending Rs. 1.97 cr. for this IPO process, and from the net proceeds of the issue, the company will utilize Rs. 5.50 cr. for working capital, Rs. 5.00 cr. for capex on plant and machinery and construction of new shed and building, and Rs. 1.60 cr. for general corporate purposes.

The IPO is solely lead managed by Horizon Management Pvt. Ltd., while Accurate Securities & Registry Pvt. Ltd. is the registrar to the issue. Horizon Group’s Horizon Financial Consultants Pvt. Ltd. is the market maker. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 50 per share per share between June 2006, and March 2008, and again at par value thereafter between March 2011 and June 2015. It has also issued bonus shares in the ratio of 3 for 1 in March 2025. Surprisingly, the average cost of acquisition of shares by the promoters’ data is missing from the offer document.

Post-IPO, company’s current paid-up equity capital of Rs. 6.00 cr. will stand enhanced to Rs. 8.16 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 53.07 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 24.01 cr. / Rs. 0.58 cr. (FY23), Rs. 22.77 cr. / Rs. 0.65 cr. (FY24), Rs. 29.66 cr. / Rs. 2.63 cr. (FY25). It posted bumper net profit for FY25 which raise eyebrows and concern over its sustainability. Its debt-equity ratio of 0.85 as of March 31, 2025 raise alarm.

For the last three fiscals, the company has reported an average EPS of Rs. 2.72, and an average RoNW of 13.37%. The issue is priced at a P/BV of 3.66 based on its NAV of Rs. 17.78 as of March 31, 2025, and at a P/BV of 2.15 based on its post-IPO NAV of Rs. 30.30 per share.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 20.12, and based on its FY24 earnings, the P/E stands at 81.25. Thus, based on its recent financial data, the issue appears aggressively priced.

The company has reported PAT margins of 2.44% (FY23), 2.85% (FY24), 8.88% (FY25), and RoCE margins of 14.62%, 14.75%, 32.74%, 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 performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer document, the company has shown Thaai Casting as its listed peer. It is trading at a P/E of around 23.1 (as of July 17, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 18th mandate from Horizon Management in the last three fiscals (including the ongoing one). From the last 10 listings, 3 opened at discount, 3 at par and the rest with premium ranging from 9.20% to 40% on listing date.