Sunita Tools BSE SME IPO review (Avoid)

Sunita Tools BSE SME IPO review (Avoid)

• STL is engaged in the engineering and mould-based industry.
• It posted an average performance for FY21 and FY22.
• Boosted performance for FY23 appears to be the window dressing for asking fancy pricing.
• The issue is aggressively priced discounting all near-term positives.
• There is no harm in skipping this pricey bet.

ABOUT COMPANY:

Sunita Tools Ltd. (STL) has been in the Engineering and mould-based Industry for more than three decades providing one of its kind customized solutions to various industries with a vision to fulfill tomorrow’s requirements today. It manufactures Ground Plates, Mould Bases, and Precision CNC Machining.

STL is equipped with modern infrastructure, including cutting-edge technology and advanced machinery, which significantly enhances productivity and efficiency. The facility boasts a highly skilled workforce, whose expertise and commitment ensure the production of outstanding high-quality precision products.

Its products are a pre-requisite and serve to the Manufacturing industries be it Automotive, Pharmaceutical, Electronics, Consumer Goods, and most of the Manufacturing Sectors. Its ability to produce customized quality products, compatible products, guidance throughout the design, manufacturing process, and after-sales technical support provides it significant competitive advantages. As of March 31, 2023, it had 38 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden combo IPO of 1520000 equity shares of Rs. 10 each at a fixed price of Rs. 145 each to garner Rs. 22.04 cr. The issue consists of 1320000 fresh equity shares (worth Rs. 19.14 cr.) and an Offer for Sale (OFS) of 200000 shares (worth Rs. 2.90 cr.). The issue opens for subscription on September 26, 2023, and will close on September 29, 2023. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.02% of the post-IPO paid-up capital of the company. STL is spending Rs. 1.77 cr. (including issue expenses of 1.54 cr.) for this IPO process, and from the net proceeds of the fresh equity issue, it will utilize Rs. 14.25 cr. for working capital, and Rs. 3.35 cr. for general corporate purposes.

Aryaman Financial Services Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. SS Corporate Securities Ltd. is the market maker for the company.

The company has issued its entire equity capital at par value so far. The average cost of acquisition of shares by the promoters is Rs. 9.42, Rs. 9.47, and Rs. 10.00 per share.

Post-IPO, STL’s current paid-up equity capital of Rs. 4.31 will stand enhanced to Rs. 5.63 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 81.56 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, STL has posted a total revenue/net profit of Rs. 6.92 cr. / Rs. 0.27 cr. (FY21), Rs. 8.89 cr. / Rs. 0.81 cr. (FY22), and Rs. 14.17 cr. / Rs. 3.38 cr. (FY23). Boosted top and bottom lines for FY23 appear to be the window dressing for asking fancy valuations.

For the last three fiscals, it has reported an average EPS of Rs. 5.10 and an average RoNW of NA%. The issue is priced at a P/BV of 19.46 based on its NAV of Rs. 7.45 as of March 31, 2023, and at a P/BV of 2.79 based on its post-IPO NAV of Rs. 51.91 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 24.17. Based on the last three fiscals’ average earnings, the P/E stands at 28.43. Thus the issue is aggressively priced.

It has posted PAT margins of 4.00 % (FY21), 9.27% (FY22), and 24.39 % (FY23), and for the said periods, its RoCE margins were 59.09 %, 59.68%, and 36.76% respectively.

Its negative NAV as of March 31, 2023, the average cost of acquisition of shares below par when its entire equity is issued at par value are the indigestible matter. As of March 31, 2023, it had total borrowings of Rs. 16.60 cr. that raise major concern.

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 no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:

This is the 17th mandate from Aryaman Financial in the last three fiscals. Out of the last 10 listings, 1 opened at discount, 2 at par, and the rest with premiums ranging from 0.22% to 27.18% of the date of listing.

Conclusion / Investment Strategy

The company is operating in a highly competitive and fragmented segment. Its performance so far is not in line with the asking price. The issue is aggressively priced discounting all near-term positives. The small equity base post-IPO indicates longer gestation for migration to the mainboard. There is no harm in skipping this pricey issue.

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