The ₹165-crore initial public offering (IPO) of Ratnaveer Precision Engineering (RPEL) opened for subscription on Monday, September 4 and is set to conclude on Wednesday, September 6. The company has set a price band in the range of ₹93-98 per share. This is the first IPO of September after a very busy August.
About the issue: The issue comprises of a fresh issue of 1.38 crore shares worth ₹135.24 crore and an offer-for-sale (OFS) for 30.40 lakh equity shares by its promoter Vijay Ramanlal Sanghavi.
Subscription status: The issue received a stellar response from investors and was fully subscribed withing an hour of its opening. At 2:05 pm on its first day of bidding, the IPO was subscribed 3.06 times against its offer. It has received bids for 3.60 crore shares against 1.17 crore shares on offer. The category for retail investors was bid the most, 4.43 times, followed by that of non-institutional investors (NII), which was subscribed to 3.93 times. However, the qualified institutional buyers (QIBs) portion has not received any bids till now.
Grey market premium: Shares of Ratnaveer Precision Engineering are commanding a premium of ₹50 in the grey market today, indicating a strong listing.
However, it is important to note that grey market premiums are just an indicator of how the company's shares are stacked up in the unlisted market and are subject to change rapidly.
Lot size: Investors can bid for a minimum of 150 shares in one lot and in multiples thereafter. At the upper price band, one lot of shares would cost ₹14,700.
Objective: The net proceeds from the fresh issue shall be utilised towards funding the working capital requirements and general corporate purposes while the firm will not receive any proceeds from the OFS portion.
Reservation: The company has reserved half of the issue, or 50 percent equity shares, for qualified institutional bidders, while non-institutional investors will get 15 percent of the allocation in the primary offering. Remaining 35 percent shares shall be reserved for the retail investors of the issue.
Anchor investors: Ahead of its IPO, Ratnaveer Precision Engineering raised ₹49.5 crore after finalising the allocation of 50,52,000 equity shares to six anchor investors at ₹98 per share. Societe Generale, Sixteenth Street Asian Gems Fund, Saint Capital Fund, Coeus Global Opportunities Fund and Leading Light Fund VCC - The Triumph Fund participated in the anchor book.
About the firm: Incorporated in 2002, Ratnaveer Precision Engineering specialises in the production of stainless steel products. These products include finished sheets, washers, solar roofing hooks, pipes, and tubes. The company has four manufacturing units located at Vadodara and Ahmedabad, Gujarat and no peer has been listed yet.
It manufactures stainless steel-based products for automotive, solar power, wind energy, power plants, oil & gas, pharmaceuticals, sanitary & plumbing, instrumentation, electromechanics, architecture, building & construction, electrical appliances, transportation, kitchen appliances, chimney liners, and other industries.
Financials: For the year ended on March 31, 2023, RPEL reported a massive 163 percent surge in its net profit at ₹25.04 crore versus ₹9.48 crore in FY22. Meanwhile, its revenue rose marginally, 12.3 percent, to ₹481.14 crore in FY23 versus ₹428.47 crore in FY22.
Backed by an expansion of product portfolio, the company's revenue from operations increased at a CAGR of 17.3 percent from FY20 to FY23. PAT has also increased at a CAGR of 51.5 percent from FY20 to FY23 while EBITDA grew at a CAGR of 22.9 percent in this time.
Furthermore, EBITDA margin witnessed substantial improvement, reaching 9.5 percent in FY23, up 306 bps from FY22, indicating enhanced operational efficiency and cost control. Consequently, EBIT margin also exhibited significant growth, reaching 8.7 percent in FY23 with a 315 bps increase from FY22.
Book-running managers: Unistone Capital is the sole manager to the issue, while Link Intime India has been appointed as the registrar to the issue.
Important dates: Ratnaveer Precision Engineering IPO allotment status will be available on or around September 11, 2023. The allotted shares will be credited to the demat account by September 13, 2023. Meanwhile, it will be listed on the bourses on September 14.
Brokerage Views
While very few brokerages have coverage on the IPO, they are mostly positive and recommend subscribing to the issue on the back of its strong business fundamental and in-line valuations. However, rising competition from unorganised players is a key concern for the firm.
Choice Broking: Subscribe with caution
There are no peer companies that have product profiles similar to RPEL. However, we have considered the above companies for benchmarking the valuation. The company’s P/E multiple at a higher price band, after adjusting for post-IPO fully diluted paid-up equity, comes out to 19 times, which seems fully priced with respect to its performance.
The company's top and bottom lines have been growing at a respectable rate, and it has reported an operating margin in the single digits. Since the market in which the company operates is fragmented and where small and medium-sized unorganised players dominate, considering its growth outlook with the growing competition, we assign a ‘subscribe with caution’ rating for the issue.
Competitive strengths, as per the brokerage:
- Synergistic backward integration system that efficiently manages waste generated during the manufacturing process by converting it back into raw materials for reuse.
- Expansion of product portfolio allows the company to effectively adapt to changing customer demands and stay competitive in the market.
- Maintained consistent customer retention rates and nurtured long-lasting relationships with its clientele.
- In-house R&D facility dedicated to the development of tools and molds for its product range; creating new and advanced product designs tailored to meet customer demands effectively.
Risk and concerns, according to Choice:
- Highly competitive and fragmented industry with low barriers to entry.
- Fluctuations in steel prices can significantly impact the business including revenue and margins, and inventory write-downs especially since this is a high volume, low margin business.
- The company has experienced negative operating cash flow for the past two years. Also, it is highly leveraged with a debt-equity ratio of 2.17.
- The company has constructed an additional area of approx. 1,300 square meters at Unit-I without obtaining the necessary approval from the competent authority. Although the company has applied for approval, it is still pending, and there is uncertainty about whether it will be granted.
