Maiden Forgings BSE SME IPO review (May apply)
• MFL is in the business of ferrous metal products with diverse product ranges.
• After average performance till FY22, it posted spectacular 3Qs of FY23.
• Based on super annualized earnings of FY23, the issue appears fully priced.
• The sustainability of margins going forward raises concern.
• Well-informed/cash surplus investors may park funds for the long term.
ABOUT COMPANY:
Maiden Forgings Ltd. (MFL) is engaged in the business of manufacturing and sales of ferrous metal products including steel bright bars, wires, profiles and ground bars. The Company has diversified its product range to include specialized products and customized/tailor-made solutions. Thus currently MFL is in the business of manufacturing and sales of diversified ferrous metal products and focuses on providing customized and specialized solutions to a diverse client base across different industries.
Currently, it has three manufacturing plants, all located in Ghaziabad, Uttar Pradesh, India. The combined aggregated manufacturing capacity of these plants is 50,000 tons per annum. The Company supplies to a diversified portfolio of over 450 B2B customers including Top Tier-I & Tier-II suppliers of major two-wheeler & four wheelers manufacturers. Its products form an important raw material base for the Original Equipment Manufacturers (OEMs) for B2B/B2C markets to marque clients like Prestige TTK, Everest, UM Auto, etc.
The product range manufactured by the Company includes 1. Carbon Steel Bright Bars: 2mm to 100mm, 2. Stainless Steel Bright Bars: 2mm to 100mm, 3. Alloy steel Bright bars: 2mm to 100mm, 4. Carbon steel wires: 0.2mm to 22mm, 5. Stainless steel wires: 0.8mm to 22mm, 6. Alloy steel wires: 0.2mm to 22mm, 7. Profiles and ground bars in different sizes and shapes, 8. Collated Pneumatic Nails
MFL has been strategically focusing on increasing the production of higher value add products through backward & forward integration, expansion of specialized products manufacturing and offering customized solutions to its customers as well as increasing its exports. The Company plans to increase its share of higher value-added products to around 25 % of its overall production over the next few years, particularly through in-house manufacturing to ensure stringent checks on the quality and have less dependence on third-party manufacturers.
Our Company is planning further horizontal expansion and diversification by installing a 5000 TPA oil tempered Induction Wire plant. This product is largely being utilized in the automotive sector widely for the manufacturing of suspension, clutch and valve springs. As on January 31, 2022, it had 115 employees.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3784000 equity shares of Rs. 10 each via book building route to mobilize Rs. 23.84 cr. (at the upper cap). The company has announced a price band of Rs. 60 – Rs. 63 for the IPO. The issue opens on March 23, 2023, and will close on March 27, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.62% of the post-IPO paid-up capital of the company. After spending Rs. 2.41 cr. for the IPO process, from the net proceeds, MFL will utilize Rs. 9.43 cr. for consolidation and expansion of manufacturing facilities, Rs. 8.00 cr. for working capital and Rs. 4.00 cr. for general corporate purposes. It has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.
Share India Capital Services Pvt. Ltd. is the sole lead manager and Maashitla Securities Pvt. Ltd. is the registrar of the issue. This is the new RTA having a maiden mandate. Share India group company Share India Securities Ltd. is the market maker for the company.
Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 30 to Rs. 105 per share between June 2005 and October 2020. It has also issued bonus shares in the ratio of 1 for 1 in November 2022. The average cost of acquisition of shares by the promoters is Rs. 1.67 and Rs. 2.73 per share.
Post-IPO, MFL’s current paid-up equity capital of Rs. 10.43 cr. will stand enhanced to Rs. 14.21 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 89.54 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, MFL posted a turnover/net profit of Rs. 204.40 cr. / Rs. 1.66 cr. (FY20), Rs. 199.38 cr. / Rs. 1.69 cr. (FY21), and Rs. 210.84 cr. / Rs. 2.14 cr. (FY22). For 3Qs of FY23 ended on December 31, 2022, it earned a net profit of Rs. 8.02 cr. on a turnover of Rs. 163.81 cr. The sustainability of margins going forward raises significant concern. According to the management, after the static performance for the last three fiscals, the company reported bumper profits for 3Qs of FY23 following diversification into high margin product mix of carbon steel, and alloy products and has shifted its focus on such high-margin products with planned expansion going forward.
For the last three fiscals, MFL reported an average EPS of Rs. 3.57 and an average RoNW of 7.77%. The issue is priced at a P/BV of 1.64 based on its NAV of Rs. 38.30 as of December 31, 2022, and at a P/BV of 1.42 based on its post-IPO NAV of Rs. 44.32 per share (at the upper cap).
If we annualize FY23 super earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 8.38. Based on its FY22 earnings, the P/E stands at 41.72. Thus the issue appears fully priced.
DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Bharat Wire Ropes, Geekay Wires, and Metal Coatings as their listed peers. They are currently trading at a P/E of 13.05, 8.26, and 34.61 (as of March 18, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
This is the 3rd mandate from Share India Capital in the last five fiscals (including the ongoing one). Out of the last 2 listings, one listed at par and the other with a premium of 1.82% on the day of listing. Thus it has an average track record.
Conclusion / Investment Strategy
Review Author
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
Email: dilip_davda@rediffmail.com
