Sharp Chucks NSE SME IPO review (Apply)

Sharp Chucks NSE SME IPO review (Apply)

• SCML is the manufacturer of forging products, casting products, and machined components.
• The company has posted steady growth in its top and bottom lines for the reported periods.
• Based on FY23 earnings, the issue appears fairly priced.
• Investors may park funds for medium to long-term rewards.

ABOUT COMPANY:

Sharp Chucks and Machines Ltd. (SCML) is one of the few integrated companies to have the capability to manufacture forging products, casting products, and machined components, which finds its application in diverse industries, such as tractors, automobiles, material handling and earth moving equipment, railways, defense, machine tools, DIY industry, etc.

The company manufactures these products from its Manufacturing Units ensuring conformity with international standards. SCML’s manufacturing facilities have advanced technologies to develop and manufacture products that meet the stringent quality control requirements of customers. As of the date of this Prospectus, it had 2 manufacturing units in Jalandhar consisting of three foundries having installed capacity of 30000 MTPA and Machining facilities consisting of VMC, CNC, and other machinery having installed capacity of 14400 MTPA, and one forging unit consisting of hammers, billiard heaters, etc. having installed capacity of 3600 MTPA.

SCML’s focus is to consistently expand its product portfolio by developing new designs. It has, in the last few years, been successful in obtaining various client approvals and thus onboarding marquee clients from the industry to which it caters. The company receives a majority of business from repetitive clients. As of August 31, 2023, it had 569 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden combo IPO of 2904000 equity shares of Rs. 10 each at a fixed price of Rs. 58 per share to mobilize Rs. 16.84 cr. The issue consists of 975484 fresh equity shares (worth Rs. 5.66 cr.), and an Offer for Sale (OFS) of 1928516 shares (worth Rs. 11.18 cr.). The issue opens for subscription on September 29, 2023, and will close on October 04, 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 26.99% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.60 cr. (15.44%) for this IPO process and from the net proceeds, it will utilize Rs. 2.67 cr. for working capital, and Rs. 0.39 cr. for general corporate purposes.

Fedex Securities Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company.

Having issued/converted initial equity shares at par, the company issued further equity shares at a price of Rs. 38.89 in July 2014 and August 2014. It has also issued bonus shares in the ratio of 1 for 1 in March 2012. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 7.94, Rs. 9.99, and Rs. 38.89 per share.

Post-IPO, SCML’s current paid-up equity capital of Rs. 9.78 cr. will stand enhanced to Rs. 10.76 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 62.41 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the past three fiscals, the company has posted a total revenue/net profit of Rs. 135.83 cr. / Rs. 3.31 cr. (FY21), Rs. 152.52 cr. / Rs. 4.53 cr. (FY22), and Rs. 179.31 cr. / Rs. 5.07 cr. (FY23).

For the last three fiscals, SCML has reported an average EPS of Rs. 4.69 and an average RoNW of 9.32%. The issue is priced at a P/BV of 1.08 based on its NAV of Rs. 53.50 as of March 31, 2023, and at a P/BV of 1.08 based on its post-IPO NAV of Rs. 53.91 per share.

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 12.31.

For the last three fiscals, the company has posted PAT margins of 2.44% (FY21), 2.98% (FY22), and 2.87% (FY23) and RoCE margins of 10.51%, 8.67%, and 11.00% for corresponding periods respectively.

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 Pritika Engg., Nelcast Ltd., and Bhagwati Autocast as their listed peers. They are trading at a P/E of 19.24, 46.70, and 23.34 (as of September 27, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 20th mandate from Fedex Securities in the last four fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 1 at par, and the rest with premiums ranging from 0.21% to 108.93% on the date of listing.

Conclusion / Investment Strategy

The company is in the manufacturing of forging products, casting products, and machined components. It has posted steady growth in its top and bottom lines for the reported periods. The issue appears fairly priced based on its FY23 earnings. Investors may park funds for medium to long-term rewards.

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