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Agni Green NSE SME IPO review (May apply)

•    AGPL is in the business of turn-key solar PV power plant executions.
  •    It has posted inconsistency in its top and bottom lines.
  •    FY22-10M has shown poor results despite the variety of products.
  •    Despite being at par, the issue is at a P/E of 250.
  •    Risk seeker/cash surplus investors may consider it for the long term.

ABOUT COMPANY:
Agni Green Power Ltd. (AGPL) is in the business of executing turn-key Solar PV Power Plant projects, including Design, Engineering, Supply, Installation & Commissioning (I&C) and Maintenance, for both Stand-alone and Grid Connected PV Systems from the conceptualization to completion stages.

It is an integrated solar energy solutions provider offering engineering, procurement and construction (“EPC”) services, and operations and maintenance (“O&M”) services to customers. AGPL also manufactures Solar Power Conditioning Unit, Solar Inverter (Hybrid & Grid Connected), Solar Maximum Power Point Tracking (MPPT) Charger, Remote Monitoring and Diagnostic System, Solar Photovoltaic Junction Box, Control Panel, Digital DC Energy Meter, Solar Adapter and Solar Pump Controller etc.

It has also expanded its footprints through four branch offices in Chhattisgarh, Assam, Mizoram and Tripura. Its key customers mainly include reputed Government organizations.

Its bank borrowing surged from Rs. 7.26 cr. for FY19 to Rs. 11.26 cr. for FY22-10M. As of the date of filing this offer document, it had 75 employees on its payroll. This segment is highly competitive and fragmented.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 4.28 cr.) and general corporate purposes (Rs. 0.50 cr.), AGPL is coming out with a maiden IPO of 5250000 equity shares of Rs. 10 each at par to mobilize Rs. 5.25 cr. The issue is opening for subscription on July 20, 2022, and will close on July 22, 2022. Minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.88% of the post-IPO paid-up capital of the company. AGPL is spending Rs. 0.47 cr. for this IPO process.

The issue is solely lead managed by Finshore Management Services Ltd., Cameo Corporate Services Ltd. is the registrar to the issue and Nikunj Share Brokers Ltd. is the market maker for this IPO.

The company has issued its entire equity capital at par value so far. It has also issued bonus shares in the ratio of 1 for 1 in October 2007, 3 for 1 in March 2013, 30 for 1 in September 2018 and 1 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 0.02 and Rs. 0.06 per share.

Post-IPO, AGPL’s current paid-up equity capital of Rs. 14.29 cr. will stand enhanced to Rs. 19.54 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 19.54 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, AGPL has posted turnover/net profits of Rs. 31.73 cr. / Rs. 2.23 cr. (FY19), Rs. 23.24 cr. / Rs. 0.10 cr. (FY20) and Rs. 35.27 cr. / Rs. 0.11 cr. (FY21). For the 10 months period of FY22 ended on January 31, 2022, it has earned a net profit of Rs. 0.07 cr. on a turnover of Rs. 7.12 cr. A sudden slide in bottom lines from FY20 onwards raises concern. Even the top line has seen a drastic fall for FY22 10M.

For the last three fiscals, AGPL has posted an average EPS of Rs. 0.64 and an average RoNW of 1.75%.  The issue is priced at a P/BV of 0.54 based on its NAV of Rs. 18.53 as of January 31, 2022, and at a P/BV of 0.62 based on its post-IPO NAV of 16.24 per share.

If we attribute its FY22 earnings on post IPO fully diluted equity, then the asking price is at a P/E of 250 making it an aggressively priced IPO despite being at par. 

DIVIDEND POLICY:
AGPL paid dividends at 10% for FY17, 30% for FY18 and 1% for FY19 and thereafter it skipped. 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, AGPLL has shown Surana Solar, Websol Energy, Urja Global and Solex Energy as its listed peers. They are currently trading at a P/E of 117.35, 37.82, 00 and 109.43 (as of July 15, 2022). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 26th mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at par and the rest with premiums ranging from 0.09% to 65.50% on the day of listings.

Conclusion / Investment Strategy

AGPL is in a highly competitive and fragmented segment of Solar power products. Its inconsistent financial performance indicates its inability to sustain growth despite having a wide product range. Based on FY22-10M performance, the issue is highly priced despite being at par. Based on its NAV and P/BV ratio, the issue appears attractive, but due to poor financial performance, it becomes risky. Hence, risk seeker/cash surplus investors may consider this at par issue for the long term.

Review By Dilip Davda on Jul 16, 2022

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