Aeron Composite NSE SME IPO review (May apply)

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Review By Dilip Davda on August 24, 2024

•    The company is engaged in the manufacturing and marketing of FRP pultruded products MMS.
•    It posted steady growth in its top and bottom lines for the reported periods. 
•    Its esteemed client list included well known PSUs and private sector corporates.
•    It is expanding its manufacturing capacities with IPO funds.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for long term. 

ABOUT COMPANY:
Aeron Composite Ltd. (ACL) is engaged in the business of manufacturing and supplying of Fiber Glass Reinforce Polymer Products i.e. FRP products including FRP Pultruded Products, FRP Moulded Gratings & FRP Rods tailored for various industrial applications. It provides comprehensive solution which includes conceptual design, prototype development, testing, manufacturing, logistic support, installation and after sales service. FRP product is a composite material consisting of a polymer matrix (resins) reinforced with fibers such as fiberglass, carbon or aramid. This combination offers numerous benefits, including corrosion resistance, chemical resistance, high strength, lightweight properties, electrical and thermal non-conductivity, and ease of fabrication.

ACL's manufacturing unit has accreditations such as ISO 9001:2015 for the scope of design, manufacturing and supply of FRP pultruded products, FRP Handrails, FRP cable trays, FRP fencing, FRP moulded gratings, FRP Cross arm, FRP poles, FRP rods and moulded mounting structure for solar panels (MMS). Further, its in-house R & D unit is registered with the "Department of Scientific & Industrial Research" for purpose of developing new products and processes. Recently, it has been awarded with Certificate of Recognition and accorded the status of "Two Star Export House" in accordance with the provisions of the Foreign Trade Policy, 2023.

ACL is generating revenues from a combination of domestic operations and international endeavors from more than 30 countries across the Globe, serving over 800 customers. It has generated 56.16%, 52.38%, 34.71% and 36.37% of total revenue from export sales and 43.84%, 47.62%, 65.29% & 63.63% of total revenue from domestic sales for the period ending February 29, 2024 and fiscal year ending 2023, 2022 and 2021 respectively. 

Currently, it is serving various industrial segments such as telecommunication, Oil & Gas, Refineries, Renewable energy, Chemicals etc. Its esteemed clients include government entities such as ONGC Tripura Power Co. Ltd., NTPC Limited, Gujarat State Fertilizers & Chemicals Ltd and Gujarat Narmada Valley Fertilizers & Chemical Ltd as well as major corporations like Grasim Industries Limited, Larsen & Toubro Limited, TATA Projects Limited, Atul Limited etc. As of July 31, 2024, it had 433 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4488000 equity shares of Rs. 10 each to mobilize Rs. 56.10 cr. at the upper cap. It has announced a price band of Rs. 121 - Rs. 125 per share. The issue opens for subscription on August 28, 2024, and will close on August 30, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 39.04 cr. for capex on setting up of an additional manufacturing unit, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Maashitla Securities Pvt. Ltd. is the registrar to the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 125 in September 2023. It has also issued bonus shares in the ratio of 7 for 1 in May 2024. The average cost of acquisition of shares by the promoters is Rs. 4.13, Rs. 4.14, Rs. 4.18, Rs. 4.38, and Rs. 27.94 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 12.53 cr. will stand enhanced to Rs. 17.02 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 212.75 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. 79.06 cr. / Rs. 2.55 cr. (FY21), Rs. 109.93 cr. / Rs. 3.62 cr. (FY22), Rs. 181.99 cr. / Rs. 6.61 cr. (FY23). For 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 9.42 cr. on a total income of Rs. 180.80 cr. While all other recent IPOs came with full FY24 numbers, this IPO is coming with only 11M of FY24 numbers and raises eyebrows.

For the last three fiscals, it has reported an average EPS of Rs. 4.00, and an average RoNW of 24.31%. The issue is priced at a P/BV of 4.51 based on its NAV of Rs. 27.75 as of February 29, 2024, and at a P/BV of 2.34 based on its post-IPO NAV of Rs. 53.40 per share (at the upper cap). 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 20.70. 

For the reported periods, the company has posted PAT margins of 3.24% (FY21), 3.34% (FY22), 3.69% (FY23), 5.26% (11M-FY24), and RoCE margins of 20.03%, 20.97%, 27.52%, 29.67% respectively for the referred periods. 

DIVIDEND POLICY:
The company has declared a dividend of 10% for FY21, FY22 and FY23. 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 50th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 16.35% to 165.22% on the date of listing. 

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