Thaai Casating NSE SME IPO review (Apply)

• TCL is a distinguished automotive ancillary providing critical components.
• The company has renowned customers and the list gets widening.
• It has posted growth in its top and bottom lines, and management is confident of maintaining the trends established.
• Based on FY24 annualized earnings, the issue appears fully priced.
• Investors may consider parking funds for the medium to long term rewards.

ABOUT COMPANY:
Thaai TCL) is a distinguished automotive ancillary company with IATF 16949:2016 certification, specializing in High-Pressure Die Casting, as well as the precision Machining of both Ferrous and Non-Ferrous materials and Induction heating and quenching. Its business model is firmly rooted in a B2B approach, catering to leading entities in the automotive components sector.

In recognition of its commitment to environmental sustainability, the company received the MSIL-GREEN Certification from Maruti Suzuki India Limited in 2021. The company was originally formed as a Partnership Firm under the Partnership Act, 1932 and was converted from Partnership firm into a public limited company as per the provision of Part I Chapter XXI of the Companies Act, 2013 with the name and style of “Thaai Casting Limited” and received a Certificate of Incorporation from the Registrar of Companies, Tamil-Nadu and Andaman situated at Chennai dated June 12, 2023.

TCL’s product portfolio encompasses a diverse range of Automobile components, including Engine Mounting Support Brackets, Transmission Mounts, Fork Shift and Housing, Armature – Steering Wheel, Electrical Connectors, YFG Base Frame (Right-hand drive side/Left-hand drive side), Housing, Top Cover, and more. As of September 30, 2023, it had 132 employees on its payroll.

TCL’s customer list includes names like PYUNG HWA, Yazaki, HL Mando, UCAL, Harting, Schindler, Hyundai, KIA, Maruti Suzuki, Toyota, Mahindra, Tata Motores, Royal Enfield etc.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6129600 equity shares of Rs. 10 each (worth Rs. 47.20 cr. at the upper cap) It has announced a price band of Rs. 73 – Rs. 77 per share. The issue opens for subscription on February 15, 2024, and will close on February 20, 2024. 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 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 37.30 for capital expenditure and the rest for general corporate purposes.

The company has reserved 347200 equity shares for the market maker, and from the rest, it has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company.

The company has issued/converted entire equity share capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00, and Rs. 11.97 per share

Post-IPO, company’s current paid-up equity capital of Rs. 17.00 cr. will stand enhanced to Rs. 23.13 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 178.10 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 20.49 cr. / Rs. 0.40 cr. (FY21), Rs. 38.42 cr. / Rs. 1.15 cr. (FY22), and Rs. 49.12 cr. / Rs. 5.04 cr. (FY23). For 7M of FY24 ended on October 31, 2023, it earns a net profit of Rs. 5.57 cr. on a total revenue of Rs. 28.89 cr. Thus its top and bottom lines posted growth for the reported periods and indicates prospects for the company going forward.

For the last three fiscals, it has reported an average EPS of Rs. 1.75, and an average RONW of 27.09%. The issue is priced at a P/BV of 5.64 based on its NAV of Rs. 13.65 as of October 31, 2023, and at a P/BV of 2.53 based on its post-IPO NAV of Rs. 30.44 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 18.64. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.97% (FY21), 3.01% (FY22), 10.29% (FY23), 19.28% (7m-FY24), and RoCE margins of 0.03%, 0.05% 0.13%, 0.09% respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends in the last five 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 shown Endurance Techno and Electrosteel as of February 12, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 21st mandate from GYR Capital in the last three fiscals, out of the last 10 listings, all opened with premiums ranging from 4.76% to 366.67% on the date of listing.

Conclusion / Investment Strategy
TCL is a distinguished automotive ancillary company and has posted growth in its top and bottom lines for the reported periods. The management is confident of improving the trends established so far. Based on FY24 annualized earnings, the issue appears fully priced. Investors may park funds for the medium to long term rewards. The closing date is extended by a day to February 20, 2024 due to Bank Holiday on February 19, 2024.