Presstonic Engg NSE SME IPO review (May apply)

• The company is engaged in the manufacturing of Metro Rail and Infra related products.
• The company has posted steady growth in its top lines for the reported periods.
• After average net earnings, it posted bumper profits from FY23 onwards.
• The issue appears fully priced based on its FY24 supper annualized earnings.
• Well-informed investors may consider parking moderate funds for the medium to long term rewards.

ABOUT COMPANY:
Presstonic Engineering Ltd. (PEL) manufactures Metro Rail Rolling Stock Products, Metro Rail Signaling Products, Infrastructure Products and supplies to renowned Global and Domestic OEM’s engaged in the Rail and Metro Rail Rolling stock and Signaling equipments manufacturing and servicing companies.

Its manufacturing facility is spread over approx. 28,317.50 sq.ft. situated at Sy. No. 2, Khatha No. 145, Hoysala Main Road, Pillappa Industrial Layout, Srigandhadakavalu, Sunkadakatte, Viswaneedam, Bangalore, North Bangalore, Karnataka – 560091 and is equipped with latest machineries, equipment and instruments which is capable of manufacturing of diverse products for Railways and Metros.

As on March 31, 2023, it had an unexecuted order book of Rs. 63.90 cr. Further April 01, 2023 onwards the company has been awarded additional order of Rs. 4.57 cr. As of November 30, 2023, it had 36 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3236800 equity shares of Rs. 10 each at a fixed price of Rs. 72 per share to mobilize Rs. 23.31 cr. The issue opens for subscription on December 11, 2023, and will close on December 13, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 42% of the post-IPO paid-up capital of the company. PEL is spending Rs. 3.25 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 2.32 cr. for capex on new plant and machinery, Rs. 5.00 cr. for prepayment of certain borrowings, 9.24 cr. for working capital, and Rs. 3.50 cr. for general corporate purposes. The issue appears fully structured with around 14% issue expenses.

The issue is solely lead managed by Finshore Management Services Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company.

The company has issued entire equity capital at par so far and has also issued bonus shares in the ratio of 1 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 5.00 per share.

Post-IPO, PEL’s current paid-up equity capital of Rs. 4.47 cr. will stand enhanced to Rs. 7.71 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 55.49 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit / – (loss) of Rs. 7.69 cr. / Rs. – (0.17) cr. (FY21), Rs. 12.72 cr. / Rs. 0.14 cr. (FY22), and Rs. 21.13 cr. / Rs. 2.56 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 1.52 cr. on a total income of Rs. 14.32 cr. Thus while its topline grew steadily, its bottom line spurted from FY23 onwards and that raises eyebrows.

For the last three fiscals, PEL has reported an average EPS of 2.91 and an average RoNW of 26.67%. The issue is priced at a P/BV of 4.99 based on its NAV of Rs. 14.44 as of September 30, 2023, and at a P/BV of 1.97 based on its post-IPO NAV of Rs. 36.64 per share.

If we attribute FY24 annualized super earnings to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 18.23.

DIVIDEND POLICY:
The company has not declared any dividends for reported financial years. 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 no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 23rd mandate from Finshore Management in the last four fiscals (including the ongoing one). Out of last10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 16.67% to 63.13% on the day of listing.

Conclusion / Investment Strategy
The company is in the business of Metro Rail/Infra related products manufacturing and marketing. It posted steady growth in its top lines for the reported periods, but sudden surge in its bottom lines from FY23 onwards raised eyebrows and concern over its sustainability. Based on super FY24 annualized earnings, the issue appears fully priced. Well-informed investors may park moderate funds for the medium to long-term rewards.

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