Elin Electronics IPO review (May apply)
• EEL provides end-to-end product solutions in electronics manufacturing services.
• The company has marked growth in its top and bottom lines for the reported periods.
• Low promoter’s holding post IPO raises concern.
• Well-informed investors may consider parking funds for medium to long-term rewards.
PREFACE:
This company originally filed DRHP for an IPO size of Rs. 760.00 cr. (Rs. 175 cr. fresh and Rs. 585 cr. OFS) in November 2021. Now with RHP for Rs. 475 cr. (Rs. 175 cr. fresh and Rs. 300 cr. OFS) worth of offer it is going public. Thus it has reduced the IPO size by Rs. 285 cr. According to management and the BRLMs, this is due to the market conditions and the revised issue plans.
ABOUT COMPANY:
Elin Electronics Ltd. (EEL) is a leading electronics manufacturing services (“EMS”) manufacturer of end-to-end product solutions for major brands of lighting, fans, and small/ kitchen appliances in India, and is one of the largest fractional horsepower motors manufacturers in India. Based on its overall market, EEL is projected to be the largest player in this category, with a market share of 12% in Fiscal 2021. (Source: F&S Report). In addition, it is one of the key players in LED lighting and flashlight with an EMS market share of approximately 7% in Fiscal 2021 and is also one of the key players in the small appliances vertical with an EMS market share of 10.7% in Fiscal 2021. (Source: F&S Report).
EEL manufactures and assembles a wide array of products and provides end-to-end product solutions. The company serves under both original equipment manufacturer (“OEM”) and original design manufacturer (“ODM”) business models. Under the OEM model, it manufactures and supplies products basis designs developed by customers, who then further distribute these products under their own brands. Under the ODM model, in addition to manufacturing, the company conceptualizes and designs the products which are then marketed to customers’ prospective customers under their brands.
EEL has developed ODM capabilities with respect to lighting products and small appliances. Its key diversified product portfolio in EMS includes (i) LED lighting, fans and switches including lighting products, ceiling, fresh air and TPW fans, and modular switches and sockets; (ii) small appliances such as dry and steam irons, toasters, hand blenders, mixer grinders, hair dryer and hair straightener; (iii) fractional horsepower motors, which is used in mixer grinder, hand blender, wet grinder, chimney, air conditioner, heat convector, TPW fans etc.; and (iv) other miscellaneous products such as terminal block for air conditioners, stainless steel blade for mixer grinders, die casting, radio sets. In addition to its EMS offerings, the company also manufactures medical diagnostic cartridges for use in diagnostic devices, and plastic moulded and sheet metal parts and components, largely for customers in the auto ancillary and consumer durables sectors. EEL manufactures and sells fractional horsepower motors under its own brand name “Elin”.
As of October 31, 2022, the company had 2,935 permanent employees and also employed around 1,682 contract labour at manufacturing facilities.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for repayment/prepayment of certain borrowings (Rs. 88.00 cr.), Capex for upgrading/expanding current facilities (Rs. 37.59 cr.), general corporate purposes, and provide an exit to some of its stakeholders, EEL is coming out with a maiden combo IPO of Rs. 175 cr. (approx. 7085020 shares) worth fresh equity issue and an Offer for Sale (OFS) of Rs. 300 cr. (approx. 12145749 shares) making an overall issue size of Rs. 475 cr. (approx. 19230769 shares at the upper cap). It has announced a price band of Rs. 234 – Rs. 247 per share of Rs. 5 each. The issue opens for subscription on December 20, 2022, and will close on December 22, 2022. The minimum application is to be made for 60 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 38.73% of the post-IPO paid-up capital of the company. It has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. Post-IPO, lower promoter’s holding raises concern.
The joint Book Running Lead Managers (BRLMs) to this issue are Axis Capital Ltd., and J M Financial Ltd., while KFin Technologies Ltd. is the registrar of the issue.
Having issued/converted initial equity shares at par, the company issued further equity shares at Rs. 15 (based on Rs. 5 FV) per share between August 1995 and June 2003. It has also issued bonus shares in the ratio of 2 for 1 in September 2021. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs.0.00, Rs. 0.01, Rs. 0.12, Rs. 0.17, Rs. 0.18, Rs. 0.33, Rs. 0.35, Rs. 0.38, Rs. 0.44, Rs.0.47, Rs. 0.51, Rs. 0.66, Rs. 0.72, Rs. 0.75, Rs. 0.77, Rs. 0.85, Rs. 0.93, Rs. 0.94, Rs. 1.05, Rs. 1.07, Rs. Rs. 1.17, Rs. 1.22, Rs. 1.27, Rs. 1.33, Rs. 1.42, Rs. 1.52, Rs. 1.55, Rs. 1.58, Rs. 1.62, Rs. 1.72, Rs. 1.93, Rs. 2.25, Rs. 2.35, Rs. 2.66, Rs. 2.96, Rs. 4.07 Rs. 5.43, Rs. 6.67, Rs. 26.89 per share.
Post-IPO, EEL’s current paid-up equity capital of Rs. 21.29 cr. will stand enhanced to Rs. 24.83 cr. Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 1226.58 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, EEL has (on a consolidated basis) posted a turnover/net profit of Rs. 786.37 cr. / Rs. 27.49 cr. (FY20), Rs. 864.90 cr. / Rs. 34.86 cr. (FY21), and Rs. 1094.67 cr. / Rs. 39.15 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 20.67 cr. on a turnover of Rs. 604.74 cr.
For the last three fiscals, EEL has reported an average EPS of Rs. 8.76 and an average RoNW of 12.90%. The issue is priced at a P/BV of 3.15 based on its NAV of Rs. 78.39 as of September 30, 2022. The IPO ad is missing info on post-IPO NAV data.
If we annualize FY23 earnings and attribute it to the post-IPO paid-up equity capital of the company, then the asking price is at a P/E of 29.69. Though based on its financial performance, the issue is fully priced, its valuation appears cheap against its listed peers.
DIVIDEND POLICY:
The company paid a dividend of 20% in September 2022. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, EEL has shown Dixon Techno and Amber Enterprise as their listed peers. They are currently trading at a P/E of 144.75 and 185.06 (as of December 15, 2022). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKERS’ TRACK RECORD:
The two BRLMs associated with the offer have handled 62 public issues in the last four fiscals (including the ongoing one). Out of which 22 issues closed below the offer price on the listing date.
Conclusion / Investment Strategy
The company enjoys good relations with marquee clients and has been posting growth in its top and bottom lines. Based on its current financials the issue is fully priced but appears cheap against listed peers. Well-informed investors may consider investment for the medium to long-term rewards.
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
