Concord Control BSE SME IPO review (May apply)

•    CCSL is engaged in the manufacturing and supply of Railway coach-related products.
•    It has developed new products for improved performance of railways.
•    Dependency on Government contracts is a major concern.
•    Based on FY22 earnings, the issue appears fully priced. 
•    Cash surplus investors may consider an investment with a medium to long-term perspective.

ABOUT COMPANY:
Concord Control Systems Ltd. (CCSL) is engaged in the business of manufacturing and supply of coach-related and electrification products for Indian Railways and other Railway Contractors. It manufactures products required in railway coaches like Inter-Vehicular Coupler, Emergency Lighting System, Brushless DC carriage fan, Exhaust fans, Cable Jackets, Bellows, etc. and products required in the electrification of coaches and broad gauge network of Indian Railways like Battery Charger 200 AH, Battery Charger 40 AH, Tensile Testing Machine.
CCSL is an approved vendor by Research Design and Standards Organization (“RDSO”) to manufacture and supply these products for the Indian Railways. The company started its operations in the year 2011 when it got approval to manufacture and supply battery chargers for traction systems of railway electrification. It further expanded its business in manufacturing products fitted in coaches of Indian Railways in the year 2013 and got approved for the Emergency Light Unit which is one of the most critical items of rolling stock application in coaches of Indian Railways for passenger safety. Emergency Light Unit switches on automatically in case of power failure or in case of accidents. Thereafter in the year 2014, it successfully received RDSO approval for manufacturing and supply of Tensile Load Testing machines for Porcelain & Composite Insulators before the installation of electrical lines. Eventually, it got approval to Supply Brushless Dc Carriage Fans to Indian railways when it changed its technology of fans from normal DC to Brushless DC.
Over the years the company has successfully developed and is supplying a wide range of products. Currently, it has two manufacturing units situated at Lucknow, Uttar Pradesh with a total size admeasuring over 1880 sq. mtrs. The Company has a research and development team dedicated to developing new products or improving existing products. Its R&D capabilities include product engineering, product simulation, prototyping, and testing which are mainly undertaken at manufacturing facilities. As of July 31, 2022, it had 73 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 7.00 cr.), and general corporate purposes, CCSL is coming out with a maiden IPO of 1512000 equity shares of Rs. 10 each via book building route with a price band of Rs. 53 to Rs. 55 per share to mobilize Rs. 8.32 cr. (at the upper price band). The issue opens for subscription on September 27, 2022, and will close on September 29, 2022. The minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up equity capital of the company. The company has allocated the net issue (post-market maker portion) as 50% for QIBs, 15% for HNI, and 35% for retail investors.
The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also the market maker for the company.
Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 75 per share in March 2018. It has also issued bonus shares in the ratio of 20 for 1 in June 2022. The average cost of acquisition of shares by the promoters is Rs. 2.02 per share.
Post this IPO, CCSL’s paid-up equity capital of Rs. 4.20 cr. will stand enhanced to Rs. 5.71 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 31.42 cr. (at the upper cap).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CCSL has (on a consolidated basis) reported a turnover/net profit of Rs. 15.89 cr. / Rs. 1.05 cr. (FY20), Rs. 17.61 cr. / Rs. 1.43 cr. (FY21), and Rs. 31.74 cr. / Rs. 2.59 cr. (FY22). Thus it has marked slow and steady progress in its performance.
For the last three fiscals, CCSL has posted an average EPS of Rs. 4.63 and an average RoNW of 31.78%. The issue is priced at a P/BV of 3.06 based on its NAV of Rs. 17.95 as of March 31, 2022, and at a P/BV of 1.98 based on its post-IPO NAV of Rs. 27.76 per share (at the upper cap).
If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12.14. Thus the issue is appearing fully priced.

COMPARISON WITH LISTED PEERS:
As per the offer documents, CCSL has no listed peers to compare with.
DIVIDEND POLICY:
The company has not declared/paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy post IPO, based on its financial performance and future prospects.
MERCHANT BANKER’S TRACK RECORD:
This is the 13th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.

Conclusion / Investment Strategy
CCSL is engaged in railway coach-related products supplying and has posted steady growth in its top and bottom lines. The only major concern is its dependency on the government which may result in delayed payments/changes in policy etc. Based on FY22 earnings, the issue appears fully priced. Cash surplus investors may consider an investment with a medium to long-term perspective.

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