Aditya Ultra NSE SME IPO review (Apply)

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Review By Dilip Davda on September 4, 2024

•    The company is in the business of manufacturing and marketing of TMT Bars under the Kamdhenu brand.
•    It marked a setback for FY23 following adverse market conditions.
•    It is back on track with improved situation as presented in FY24  earnings.
•    Based on FY24 earnings, the issue relatively appears fully priced. 
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
Aditya Ultra Steel Ltd. (AUSL) is engaged in the business of manufacturing of rolled steel product i.e. TMT bars under the Kamdhenu brand catering mainly to the construction industry and for infrastructure development. The Company manufactures TMT bars from billets through reheating furnace and rolling mill. It has a history of more than 12 (Twelve) years in manufacturing of TMT bars industry. AUSL designs and manufactures TMT bars and sells it on B2B Basis. Its customer base is mainly spread across the State of Gujarat. 

Within a short span of time, the Company has carved a niche for itself in the steel industry, which is witnessed by growth in operational revenue with a CAGR of approximately 26.16%. The Company was originally incorporated as Aditya Ultra Steel Private Limited on July 27, 2011 under the provisions of the Companies Act, 1956 in the State of Gujarat. During the year 2016 -2017, Mr. Varun Manojkumar Jain and Mrs. Varuna Jain acquired all the equity shares of the Company from the erstwhile promoters and other shareholders. Subsequently, the Company was converted into a public limited company and the name was changed to "Aditya Ultra Steel Limited" vide fresh Certificate of Incorporation dated July 26, 2018 issued by the Registrar of Companies, Gujarat at Ahmedabad. 

At present, it has an integrated production capacity of 1,08,000 MT for TMT Bars. The Company entered into a three-year retail license agreement with Kamdhenu Metallic Industries Limited in January 2023 to manufacture KAY2 and KAY2 XENOX TMT bars on a royalty basis. As of March 31, 2024, the Company has established a network of approximately 73 dealers covering the Kutch and Saurashtra region of Gujarat. It has developed a robust marketing network throughout Gujarat, supplying products under the Kamdhenu brand, and has consistently commanded a premium over other industry players.

Its arrangement with KMIL for usage of the Kamdhenu brand allows the Company in leveraging supply of material at ease since 'Kamdhenu' is well renowned brand in TMT bar market and commands a significant amount of premium as compared to peers. As of April 30, 2024, it had 149 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 7400000 equity shares of Rs. 10 each to mobilize Rs. 45.88 cr. at the upper cap. It has announced a price band of Rs. 59 - Rs. 62 per share. The issue opens for subscription on September 09, 2024, and will close on September 11, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes 29.80% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 15.35 cr. for capex on solar plant, Rs. 15.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Swastika Investmart. Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 65 - Rs. 90 between February 2024 and May 2024. It has also issued bonus shares in the ratio of 2 for 5 in February 2024. The average cost of acquisition of shares by the promoters is Rs. 2.26, Rs. 3.14, and Rs. 8.90 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.44 cr. will stand enhanced to Rs. 24.84 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 153.98 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 515.98 cr. / Rs. 4.89 cr. (FY22), Rs. 530.49 cr. / Rs. 2.78 cr. (FY23), Rs. 588.56 cr. / Rs. 7.92 cr. (FY24). 

According to the management, in FY23, higher coal prices and volatile commodity market coupled with reduced import duty on steel attributed to lower earnings. However, since the situation is reversed and the coal prices and steel prices are back to normal, it earned higher net with contribution from the added capacities. The company will reduce its electricity cost with the proposed solar plant investment and improve its performance going forward as indicated by FY24 results. 

For the last three fiscals, it has reported an average EPS of Rs. 3.33, and an average RoNW of 16.92%. The issue is priced at a P/BV of 2.83 based on its NAV of Rs. 21.93 as of March 31, 2024, and at a P/BV of 1.82 based on its post-IPO NAV of Rs. 34.13 per share (at the upper cap). 

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 19.44. 

For the reported periods, the company has posted PAT margins of 0.95% (FY22), 0.52% (FY23), 1.35% (FY24), and RoCE margins of 14.33%, 10.76%, 18.75% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in the month of March 2024, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Rathi Bars, and Mangalam Worldwide as their listed peers. They are trading at a P/E of 19.0 and 16.0 (as of September 04, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from Swastika Investmart in the last three fiscals (including the ongoing one), out of the last 11 listings, 1opened at discount, 1 at par and the rest with premiums ranging from 4.17% to 110.64% on the date of listing. 

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