Courtesy: https://www.chittorgarh.com/
Krishca Strapping NSE SME IPO review (Apply)
KSSL is engaged in the manufacturing and marketing of Strapping tools, seals etc.
In a short span, it has established itself as a niche player in the segment.
Its financial performance is indicating at the prospects going forward.
Based on FY23 earnings, the IPO is lucratively priced at around 7.26 P/E.
Investors may consider parking funds for medium to long-term rewards.
PREFACE:
Mostly we have witnessed SME IPOs coming to raise funds for their working capital and general corporate purpose. While this company is aiming to invest nearly two-thirds in setting up of new strapping line that will add to its top and bottom lines going forward. In a short span, KSSL has won many good customers with rising market share and now also mulls the packaging contract segment to enhance its revenue and earnings. Based on its FY23 earnings, the issue is lucratively priced. However, the offer document is silent on its post-IPO NAV details. It revised allocation by IPO ad to QIB 1508000 (Including Anchor 904000) shares, HNI 454000 shares and Retail 1058000 shares.
ABOUT COMPANY:
Krishca Strapping Solutions Ltd. (KSSL) is engaged as the Manufacturer and Wholesaler of Strapping Tools, Strapping seals, etc. Its products are high in demand due to their premium quality and affordable prices. At KSSL’s Chennai facility, Heat treated high tensile Steel Straps is manufactured using state-of-the-art equipment and supervised by expert metallurgists and engineers.
Its product line has PLC Controlled automatic production line, an Automated heat treatment process-Uniform grain structure. Pollution-free production process – Lead-free, Super Jumbo coils up to 500 Kg. Its Steel strap quality parameters are in line with American, European and Indian standards.
KSSL provides products and solutions that are aimed at bringing to its customers the best, in terms of quality and service and believes in continuous innovation with end-to-end solutions. It is important to it that the company consistently provide a high-quality product with good value. KSSL also started exporting its products in FY22. Its products are sold under the “Krishca” brand. In a short span, KSSL has gained a market share of 7.5% amidst players like Signode India, Grip Strapping, Tata Steel BSL and Walzen Strips. Considering the demand for its products, the company has planned for one more line of production. The offer document is silent on the human resources data. According to the management, they have 53 permanent employees and 50+ contract labours as of February 15, 2023. China + 1 policy augurs well for this segment and plans for the packaging contract arena will bring more rewards for the company going forward.
Considering the rising demand for its products from Gulf countries, KSSL is vying for options of having its manufacturing plant in the UAE.
Its marquee clients list includes BAOSTEEL, Jindal Steel, Jindal Aluminium, SAIL, Hyundai Steel, THL Pipe, Posco, etc.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3320000 equity shares of Rs. 10 each via the book-building route. It has announced a price band of Rs. 51 – Rs. 54 per share and at the upper cap, it mulls raising Rs. 17.93 cr. The issue opens for subscription on May 16, 2023, and will close on May 19, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.50% of the post-IPO paid-up capital of the company. KSSL is spending Rs. 1.04 cr. for this IPO process and from the net proceeds, it will utilize Rs. 12.04 cr. as capex for setting up of new strapping line, Rs. 3.75 cr. for repayment of certain borrowings, and the balance for the general corporate purposes.
As per the revised allocations for the IPO, as indicated in the ad, it has now allocated 1508000 shares for QIB (including Anchor 904000), HNI 454000 shares and Retail 1058000 shares.
The company has issued the entire equity capital at a par value so far and has also issued bonus shares in the ratio of 3 for 4 in February 2023. The average cost of acquisition of the shares by the promoters is Rs. 0.074 and Rs. 1.761 per share.
Share India Capital Services Pvt. Ltd. is the sole lead manager and Purva Sharegistry India Pvt. Ltd. is the registrar of the issue. Share India Group’s Share India Securities Ltd. is the market maker for the company.
Post-IPO, KSSL’s current paid-up equity capital of Rs. 8.75 cr. will stand enhanced to Rs. 12.07 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 65.18 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KSSL has posted a turnover/net profit – (Loss) of Rs. 0.98 cr. / Rs. – (2.24) cr. (FY20), Rs. 9.71 cr. / Rs. – (0.67) cr. (FY21), and Rs. 18.72 cr. / Rs. 1.51 cr. (FY22). Thus it marked gradual growth in its top and bottom lines. For the period ended on Feb 15, 2023, of FY23, it posted a net profit of Rs. 7.86 cr. on a turnover of Rs. 63.51 cr. following good demand for the product and the niche space it created in the market in this segment competing with many big players. KSSL’s capacity utilization has increased from a mere 0.66% in FY20 to 50.25% for 10.5M of FY23. Despite the Pandemic, it fared well in FY21.
For the last three fiscals, KSSL has posted an average EPS of Rs. – (10.58) and an average RoNW of 0.083. The issue is priced at a P/BV of 2.86 based on its NAV of Rs. 18.91 as of February 15, 2023, but the offer document is silent on its post-IPO NAV data.
If we annualize FY23 earnings and attribute it to fully diluted post-IPO equity capital, then the asking price is at a P/E of 7.26, thus the issue is lucratively priced.
DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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, the company has shown Usha Martin and Metal Coatings as their listed peers. They are currently trading at a P/E of 33.03 and 39.05 (as of 12 May 2023). However, they are not truly comparable on an apple-to-apple basis and the list has surprised the market.
MERCHANT BANKER’S TRACK RECORD:
This is the 8th mandate from Share India Capital in the last six fiscals (including the ongoing one). Out of the last 7 listings, 5 opened at par and 2 got listed at a premium ranging from 1.82 % to 88.12% on the listing date. Thus it has an average track record.
Conclusion / Investment Strategy
KSSL has created a niche place and increased its market share within a short span. It is now adding one more production line to meet the demand and also repaying partial debt resulting in increased earnings. Based on its FY23 performance, the issue is lucratively priced. Investors may consider parking funds for 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
Courtesy: https://www.chittorgarh.com/
