Synergy Green BSE SME IPO review (May apply)

•    SGIL is a Ugar Sugar group company.
•    Improved financials, but carried forward losses a major concern.
•    Issue is priced aggressively.
•    Peers are trading at lower P/Es.
•    Average track record of LM.

About Company:
Synergy Green Industries Ltd. (SGIL) is engaged in the business of foundry i.e. manufacturing of castings, industrial castings, turbine castings, metal castings, steel castings and Windmill Parts. Its manufacturing unit is situated at Kolhapur, Maharashtra. Company is from Ugar Sugar group.

Company is an ISO 9001:2015 certified for Manufacture of Graded Grey Iron, Spheroidal Graphite Iron and Steel Casting and Machined Components for Non-Automotive and Industrial Applications. It is capable to handle the castings ranging from 500 Kg to 17 MT single piece in ductile iron and grey iron. Company’s plant is equipped with MAGMA simulation software, Furan no bake moulding plant, Induction melting furnace and entire range of testing equipment’s to meet stringent quality specifications. SGIL activities consists of three segments namely Wind Turbine, Wind Gear Box and General Engineering (Non-Wind Segment) like Mining equipment, Pump and Valve Industry Plastic Injection machines, traction motors and small casting.

Issue Details/Capital History:
To part finance its plans for purchase of plant and machinery, working capital and general corpus fund needs, SGIL is coming out with a maiden IPO of 3780000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 26.46 cr. Issue opens for subscription on 04.09.18 and will close on 07.09.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue is solely lead managed by Swastika Investmart Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.75% of the post issue paid up capital of the company. Having issued initial equity at par, it raised fresh equity at a price of Rs. 60 per share (350000 shares in February 2018). Average cost of acquisition of shares by the promoters is Rs. 10.00, Rs. 10.27, Rs. 10.33 and Rs. 52.54 per share. Post issue, its current paid up equity capital of Rs. 10.35 cr. will stand enhanced to Rs. 14.13 cr. SGL also has other equity (Non-Cumulative Redeemable Preference shares) to the tune of Rs. 10.71 cr.

Financial Performance:
On performance front, for last five fiscals, SGIL has posted turnover/net profits of Rs. 37.24 cr. / Rs. – (9.02) cr. (FY14), Rs. 63.85 cr. / Rs. – (6.85) cr. (FY15), Rs. 82.60 cr. / Rs. 1.55 cr. (FY16), Rs. 120.67 cr. / Rs. 4.86 cr. (FY17) and Rs. 103.13 cr. / Rs. 4.66 cr. (FY18). No doubt it’s earnings turned positive from FY16, as on 31.03.18 it still has negative reserves due to losses of FY14 and FY15. For FY18 it suffered a setback in top and bottom lines. For last three fiscals it has posted an average EPS of Rs. 7.24 and an average RoNW of 26.01%. Issue is priced at a P/BV of 5.24 on the basis of its NAV of Rs. 13.37 as on 31.03.18 and at a P/BV of 2.79 on the basis of post issue NAV of Rs. 25.07. If we consider latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 21 plus. Thus issue is fully priced on the basis of its track record so far. Although the industry average P/E is around 37, this issue with negative reserves as on 31.03.18 sounds expensive.  

Listed Peers comparisons:
As per offer documents it has shown Kalyani Forge and Ramkrishna Forging as its listed peers that are currently trading at a P/Es of around 17 and 20. (As on 30.08.18).

Merchant Banker’s track records:
On merchant banker’s front, this is the 17th mandate from its stable in last three years. Out of last 10 listings, 2 opened at discount and the rest with a premium ranging from 1.637% to 20% on the day of listing.