Holmarc Opto NSE SME IPO review (May apply)

Holmarc Opto NSE SME IPO review (May apply)

• HOL is engaged in the manufacturing of a variety of scientific and engineering instruments.
• It has posted steady growth in financial performance for the last three fiscals.
• Based on FY23 earnings, the issue appears reasonably priced.
• It is in the highly competitive and fragmented segment.
• Well-informed investors may park funds for medium to long-term rewards.

ABOUT COMPANY:

Holmarc Opto-mechatronics Ltd. (HOL) is engaged in the manufacturing of a variety of scientific and engineering instruments for research, industry and education i.e. Imaging Instruments, Measuring Instruments, Spectroscopy, Analytical Instruments, Lab Instruments, Physics Lab Instruments, Breadboard/Table Tops, Opto-mechanics, Optics, Linear & Rotation Stages, Motorized Linear & Rotation Stages, Industrial Automation etc.

Its manufacturing facility is equipped with the latest machinery, equipment and instruments which are capable of manufacturing diverse products. With state-of-the-art machines, equipment and instruments, Holmarc’s technicians and engineers bring out quality products, each distinct and best in its kind. All its departments, be it optics design, optics manufacturing, mechanics design, electronics R&D or software development are manned by experienced professionals in the respective disciplines. Holmarc is unique in its approach to providing after-sales service.

It gives maintenance and modification support for all products as long as the customer needs it irrespective of warranty or year of purchase. HOL is an ISO 9001:2015 certified company for designing, developing and manufacturing scientific instruments and devices for Industries, Research and Educational Institutes.

The company manufactures a variety of import substitute products for the Indian market which also can find a wide export market. Products which come under this category are Quantum Efficiency Measurement Stations for solar cells, UV Laser Marking Stations for photo-lithography, Automated Rotary Antenna Positioners, Spectroscopic Ellipsometer for thin film measurements, UV Ozone Cleaners, Spectroscopic Reflectometer, Photo Detector Measurement System, Raman Spectrometer, etc. Over the last three decades, HOL has developed a number of products with unique designs for scientific and engineering applications. It has developed over 800 products with standard specifications and has developed numerous customized products as well.

It has entered into technical collaborations/Tie-ups with some of the leading/premier institutes and universities for the transfer of technology for manufacturing of certain specific instruments. As of the date of filing this offer document, it had 304 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden IPO of 2850000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 11.40 cr. The issue opens for subscription on September 15, 2023, and will close on September 20, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.36% of the post-IPO paid-up equity capital of the company. HOL is spending Rs. 1.54 cr. (13.51%) for this issue and from the net proceeds, it will utilize Rs. 3.54 cr. for the purchase of additional plant and machinery, Rs. 4.82 cr. for working capital, and Rs. 1.50 cr. for general corporate purposes.

Finshore Management Services Ltd. is the sole lead manager and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company.

The company has issued the entire equity capital at par value so far and has also issued bonus shares in the ratio of 7 shares for every 2 shares in February 2023. The average cost of acquisition of shares by the promoters is Rs. 0.55, and Rs. 0.57 per share.

Post-IPO, HOL’s current paid-up equity capital of Rs. 7.20 cr. will stand enhanced to Rs. 10.05 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 40.20 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, HOL has posted a total revenue/net profit of Rs. 15.73 cr. / Rs. 0.69 cr. (FY21), Rs. 21.18 cr. / Rs. 1.55 cr. (FY22), and Rs. 29.18 cr. / Rs. 3.56 cr. (FY23).

For the last three fiscals, the company has reported an average EPS of Rs. 3.36 and an average RoNW of 23.30%. The issue is priced at a P/BV of 2.48 based on its NAV of Rs. 16.11 as of March 31, 2023, and at a P/BV of 1.75 based on its post-IPO NAV of Rs. 22.88 per share.

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 11.30. Thus the IPO appears reasonably priced.

DIVIDEND POLICY:

The company has paid a dividend at the rate of 60% (FY19), 75% (FY20), 100% (FY21), 100% (FY22), and 30% (FY23 – on an ex-bonus basis). It will continue to adopt a prudent dividend policy based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:

As per the offer document, HOL has shown no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:

This is the 22nd mandate from Finshore Management in the last four fiscals (including the ongoing one). Out of the last 10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 16.67% to 150% on the date of listing.

Conclusion / Investment Strategy

The company is in a highly competitive and fragmented segment. It has posted steady growth in its top and bottom lines. Based on FY23 earnings, the issue appears reasonably priced. Well-informed investors may park funds for medium to long-term rewards.

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