Vision Infra Equip NSE SME IPO review (May apply)

•    The company is engaged in providing solutions in equipment space required for infrastructural contracts.
•    For the last three fiscals, its top line remained almost static.
•    For FY24 it posted bumper net earnings on consolidated basis, that not only raises eyebrows, but also concern over its sustainability going forward.
•    Based on FY24 consolidated super earnings, the issue relatively appears fully priced. 
•    Well-informed investors may park funds for the long term.

ABOUT COMPANY:
Vision Infra Equipment Solutions Ltd. (VIESL) is a solution provider in the equipment space delivering services in airports, smart cities, irrigation, building & factories, mining, railways, etc. Its portfolio of services includes: renting of road construction equipment and trading and refurbishment of these equipment. Its services offer several advantages, such as improved efficiency, cost control and a streamlined supply chain. Company's business of renting of road construction equipment is executed in two rental modes based on: (i) "time-based pricing" and (ii) "output based pricing". The time based pricing model allows customers to pay for the equipment based on how much they use it or the time duration they utilize it for, which is primarily a fixed fee. 

This model is common where its equipment is leased to contractors or developers in the infrastructure industry and in road construction activity like: paving. Rental based on the output of a service provider is often referred to as "output-based pricing". In this model, the customer pays for the service based on the results or outcomes delivered by the service provider, rather than a fixed fee or hourly rate. This approach is commonly used in delivering its services as service provider for various road construction activities like: milling and crushing. The company deploys equipment, manpower and other resources for running out these activities.

It has large no. of fleet of major OEM's like Wirtgen, Case, Luigong, Dynapac, Komatsu, Atlas Copco, Ashok Leyland, Bharat Benz, Eicher Motors, Volvo, Terex Power Screen, Caterpillar, Metro, BOMAG etc which is rented out to infra companies like: Larsen & Toubro, Ashoka Buildcon Ltd, Afcons Infrastructure Ltd, NCC Ltd, GMR Infraprojects Ltd, Shapoorji Pallonji, Dilip Buildcon Ltd, Tata Projects Ltd, ITD Cementation India Limited, HG Infra Engineering Ltd , IRB Infra developers Ltd, GR Infra Projects Ltd, etc. Offering a fleet of road construction equipment for rent provides flexibility to clients who may not want to invest in purchasing the machinery outright. 

Further it allows clients to access the latest technology without the long-term commitment of ownership. As of March 31, 2024 it owned a fleet of 395 road construction equipment. During the FY 2022, it rented out construction equipment to approx. 95 customers which expanded to approx. 133 customers during FY 2024. As of March 31, 2024, it had 227 employees on its payroll and additional 763 contractual employees in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6516000 equity shares of Rs. 10 each to mobilize Rs. 106.21 cr. at the upper cap. It has announced a price band of Rs. 155 - Rs. 163 per share. The issue opens for subscription on September 06 2024, and will close on September 10, 2024. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes 26.44% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 46.81 cr. for capex on purchase of additional equipment, Rs. 36.50 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. HEM group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued/converted entire initial equity shares at par value, the company issued further equity shares at a price of Rs. 138 in July 2024 as pre-IPO placement. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 10 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.13 cr. will stand enhanced to Rs. 24.64 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 401.67 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 305.10 cr. / Rs. 9.28 cr. (FY22), Rs. 368.90 cr. / Rs. 9.19 cr. (FY23), (and on a consolidated basis) Rs. 349.66 cr. / Rs. 26.69 cr. (FY24). FY24 consolidated numbers has surprises in store as it marked bumper net earnings on lower top line. It also marked higher other income of Rs. 16.91 cr. for the said period.

For the last three fiscals, it has reported an average EPS of Rs. 10.38, and an average RoNW of 73.23%. The issue is priced at a P/BV of 12.02 based on its NAV of Rs. 13.56 as of March 31, 2024, and at a P/BV of 2.85 based on its post-IPO NAV of Rs. 57.25 per share (at the upper cap). 

If we attribute FY24 consolidated earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 15.05, and on standalone basis FY23 earnings, the P/E stands at 43.70. Thus the issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 3.15% (FY22), 2.55% (FY23), 8.02% (FY24), but it is missing RoCE margins data for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in March 2024, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 53rd mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 16.35% to 165.22% on the date of listing.