Amic Forging BSE SME lPO review (May apply)

• AFL is engaged in the manufacturing and marketing of forged components for various industries.
• It marked boosted profits from FY23 onwards, that raises eyebrows.
• Based on its super annualized earnings for FY24, the issue appears fully priced.
• The company has kept two market makers for this IPO.
• Well-informed investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Amic Forging Ltd. (AFL) is a manufacturer in forging industry and is engaged in manufacturing of forged Components catering to various industries. It manufactures precision machined components as per customer specifications and International Standard catering to the requirements of various industry such as Heavy Engineering, Steel Industry, Oil & Gas, Petrochemicals, Chemicals, Refineries, Thermal Power, Nuclear Power, Hydro Power, Cement Industry, Sugar and other related industries.

Some of its common running components are Rounds, Shafts, Blanks and complete finished engineering, spare parts e.g. Gear coupling, Hub, Round, Flange, other all kinds of engineering spares as per customer specifications. These products are mainly manufactured in carbon steel, alloy steel, stainless steel, Nickel and Tools Alloys. The company has a state-of-the-art forging facilities and machining capabilities to cater to the requirements of its domestic & international customers. By integrating several processes under one facility, the company is in position to minimize cost and lead time.

The company has its well established design center with latest 3D software and highly trained technicians. It has earned its name in a short span of time because of committed delivery and premium quality product. To achieve international quality standards requirements, every process is linked with stage inspection. Material moved from one process to other process only after stage inspection clearance. Samples are also taken at every stage to test during manufacturing process. Every single product is being tested for its quality parameters defined in specification or as per customer requirements.

AFL has established a strong position in the domestic market and specializes in manufacturing a wide range of open forgings, including rounds, shafts, blanks, and complete finished engineering spare parts like gear couplings, hubs, flanges, and other custom-engineered components. As of June 30, 023, it had 80 employees on its payroll including 56 permanent staff.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 2762000 shares of Rs. 10 each and has announced a price band of Rs. 121 – Rs. 126 per share. It mulls mobilizing Rs. 34.80 cr. at the upper cap. The issue opens for subscription on November 24, 2029, and will close on December 01, 2023. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 22.35 cr. for capex on new manufacturing unit, Rs. 7.50 cr. for working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Gretex Corporate Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. GRETEX group’s Gretex Share Broking Ltd. (GSBL) jointly with Rainbow Securities Pvt. Ltd. are the market makers for the company. Both LM and MM (GSBL) have underwritten 50% of IPO.

Having issued initial equity shares at par, the company allotted further equity shares in the price range of Rs. 50.00 – Rs. 160.00 per share between March 2008 – February 2023. It has also issued bonus shares in the ratio of 8 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 4.74, Rs. 4.84, Rs. 8.19, and Rs. 12.17 per share.

Post-IPO, AFL’s current paid-up equity capital of Rs. 7.73 cr. will stand enhanced to Rs. 10.49 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 132.15 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AFL has (on a consolidated basis) posted a total income/net profit of Rs. 26.43 cr. / Rs. 0.56 cr. (FY21), Rs. 71.39 cr. / Rs. 0.87 cr. (FY22), and Rs. 116.83 cr. / Rs. 9.80 cr. (FY23). For Q1 of FY24, it earned a net profit of Rs. 3.60 cr. on a total income of Rs. 29.79 cr. Quantum jump in bottom lines from FY23 i.e. pre-IPO year raises eyebrows. According to the management, with their backward integration and high margin products, they are confident of maintaining the margins with growing mode in coming years. They have orders worth Rs. 46 cr. in their hand currently and are to be completed before this fiscal end.

For the last three fiscals, the company reported an average EPS of Rs. 6.92 and an average RoNW of 29.84%. The issue is priced at a P/BV of 4.16 based on its NAV of Rs. 30.27 as of June 30, 2023. IPO pricing ad is missing info on its post-IPO NAV data on lower and upper price band.

If we attribute consolidated FY24 super annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 9.18. Thus the issue appears fully priced based on its recent super earnings.

For the reported periods, the company has posted PAT margins of 2.13% (FY21), 1.22% (FY22), 8.46% (FY23), 12.17% (Q1-FY24), and RoCE margins of 10.05%, 10.31%, 55.78% and 17.86% respectively for corresponding years.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Maiden Forgings, Ramkrishna Forgings as their listed peers. They are trading at a P/E of 19.36 and 48.96 (as of November 24, 2023). However, it is not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 19th mandate from Gretex Corporate in the last three fiscals (including the ongoing one). Out of the last 10 listings, 3 listed at a discount, 1 at par and the rest listed at premiums ranging from 4.26% to 90.00% on the day of listing.

Conclusion / Investment Strategy
The company is operating in a highly competitive segment with many big players around. The sudden boost in its profit margins from FY23 raises eyebrows and concern over sustainability. Based on its supper annualized FY24 earnings, the issue appears fully priced. Well-informed investors may park funds for the medium to long-term rewards.

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