Z-Tech NSE SME IPO review (Apply)

•    The company is engaged in sustainable theme park development, industrial water treatment and geo technical specialized solutions and has created a niche place.
•    It currently has major thrust for sustainable theme park development, which is a high margin category and has over 60% contribution in its top line. 
•    Major work in theme park segment has resulted in boosting its top and bottom line for FY24.
•    It has ongoing projects worth Rs. 168+ cr. and many more in pipeline.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Investors may lap it up for the medium to long term rewards.

ABOUT COMPANY:
Z-Tech (India) Ltd. (ZIL) originally designs civil engineering products and services with state‐of‐the‐art specialty in Geo‐ Technical Specialized Solutions in the field of infrastructure and civil construction projects to India. It includes a range of techniques, methodologies, and technologies aimed at optimizing the performance and stability of structures built on or in the ground. In addition to this, it is actively engaged in the waste management sector, where its focus involves creating theme parks through the utilization of recycled scrap materials. 

Simultaneously, the company is dedicated to implementing innovative waste water management solutions for industrial units, employing the cutting-edge GEIST technology. This dual commitment underscores its holistic approach to sustainable practices, transforming discarded materials into recreational spaces while efficiently managing industrial wastewater through state-of-the-art technology. ZIL is engaged in providing innovative, safe and eco-friendly engineering solutions to its customers. These solutions include three major categories: a) Sustainable Theme Park Development
b) Industrial Waste Water Management, and c) Geo Technical Specialized Solutions.

As of May 10, 2024, it had 72 employees on is payroll. The company has ongoing projects worth Rs. 168.98 cr. The company has many bids in the pipeline indicating bright prospects ahead. The offer document has some error on its human resources tally (refer Page 165).

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3391200 equity shares of Rs. 10 each to mobilize Rs. 37.30 cr. at the upper cap. It has announced a price band of Rs. 104 - Rs. 110 per share. The issue opens for subscription on May 29, 2024, and will close on May 31, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 23.76 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Narnolia Financial Services Ltd.., and Maashitla Securities Pvt. Ltd. is the registrar to the issue. NVS Brokerage Pvt. Ltd., is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 489 in November 2023, and has also issued bonus shares in the ratio of 7 for 1 in the month of November 2023. The average cost of acquisition of shares by the promoters is Rs. 1.45, and Rs. 15.39 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.41 cr. will stand enhanced to Rs. 12.80 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 140.77 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 23.96 cr. / Rs. 0.70 cr. (FY21), Rs. 30.84 cr. / Rs. 0.07 cr. (FY22), Rs. 25.88 cr. / Rs. 1.96 cr. (FY23), and Rs. 67.37 cr. / Rs. 7.79 cr. (FY24).

For the last four fiscals, it has reported an average EPS of Rs. 4.22, and an average RoNW of 19.75%. The issue is priced at a P/BV of 4.52 based on its NAV of Rs. 24.32 as of March 31, 2024, and at a P/BV of 2.38 based on its post-IPO NAV of Rs. 46.26 per share (at the upper cap). However, IPO price band ad is missing its post-IPO NAV data.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 18.06. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 2.63% (FY21), 0.31% (FY22), 7.70% (FY23), 12% (FY24) on standalone basis, and RoCE margins of 11.10%, 1.79%, 25.30%, 45.73% (on consolidated basis) respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ion Exchange, Felix Ind., Wonderla Holidays, H G Infra, Nicco Parks, and NCC Ltd., as their listed peers. They are trading at a P/E of 38.0, 379.0, 30.6, 19.0, 28.5, and 24.2 (as of May 24, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Narnolia Financial in the last two fiscals (including the ongoing one), out of the last 9 listings, all listed at premiums ranging from 4.35% to 110.36 % on the date of listing.