Agarwal Toughened NSE SME IPO review (May apply)

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Review By Dilip Davda on November 23, 2024

•    The company is primarily engaged in the manufacturing of toughened glasses.
•    It has added other variety of glasses. 
•    The company is having B2B business model. 
•    Based on FY25 supper annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for medium term. 

ABOUT COMPANY:
Agarwal Toughened Glass India Ltd. (ATGIL) was incorporated with the primary goal of becoming a recognized manufacturer of toughened glass. It is a company that produces toughened glass by processing several types of glass. The company provides a range of thickness and size options for hardened value-added glasses. Processing the float glass yields the toughened value addition glasses. Following the manufacturing of toughened glass, various types of glasses are produced, including laminated, frosted, tinted, reflecting, clear, and double-glazed toughened glass. Toughened glass is used in many demanding applications because of its strength and safety, such as shower doors, refrigerator trays, mobile screen protectors, bulletproof glass for diving masks, and a variety of plates and cookware. It's over 95% revenue comes from B2B business.

It is also used in architectural glass doors and tables. Toughened glass is also frequently utilized as dividers in buildings housing residential and commercial apartments, hospitals, airports, shopping centers, stairwells, balustrades, and other architectural elements. The Company processes a range of toughened glasses that meet the quality criteria set by the Bureau of Indian criteria (BIS) to be used with the ISI label. It can now compare Quality Management System to the best in the world thanks to ISO 9001:2015 certification. ATGIL only sells products within India catering to segments such as office buildings, hotels, institutions, banks, insurance firms, shopping centers, diplomatic homes, etc. Its products are used in a multitude of applications, including as the exterior and interior spaces of residential and commercial structures, and cater to a variety of end use industries, including the construction, automotive, and industrial sectors. As of September 30, 2024, it had 207 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5799600 equity shares of Rs. 10 each to mobilize Rs. 62.64 cr. (at the upper cap). The company has announced a price band of Rs. 105 - Rs. 108 per share. The issue opens for subscription on November 28, 2024, and will close on December 02, 2024. The minimum number of shares to be applied is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 32.81% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 9.67 cr. for purchase of machinery for existing manufacturing unit, Rs. 6.00 cr. for repayment of certain borrowings, Rs. 25.00 cr. for working capital, and the rest for general corporate purposes.  

The IPO is solely lead managed by Cumulative Capital Pvt. Ltd. and KFin Technologies Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the Market Maker for the company. 

The company has issued entire equity capital at par value so far, and has issued bonus shares in the ratio of 3 for 2 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 3.82, and Rs. 4.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.88 cr. will stand enhanced to Rs. 17.68 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 190.89 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 34.72 cr. / Rs. 0.50 cr. (FY22), Rs. 40.60 cr. / Rs. 0.97 cr. (FY23), and Rs. 40.50 cr. / Rs. 8.69 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 4.54 cr. on a total income of Rs. 23.50 cr. Quantum jump in bottom lines from FY24 onwards not only raises eyebrows, but also concern over its sustainability. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.00 and an average RoNW of 32.13%. The issue is priced at a P/BV of 6.15 based on its NAV of Rs. 17.56 as of September 30, 2024, but the offer document and price band ad is missing its post-IPO NAV data. The offer document is also missing is NAV data as of March 31, 2024.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 21.01, and based on FY24 earnings, the P/E stands at 22.00. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.50 % (FY22), 2.43 % (FY23), 22.66% (FY24), 20.37% (H1-FY25), and RoCE margins of 8.14 %, 9.73%, 31.34%, 19.78% respectively for the referred periods.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Sejal Glass, and Borosil Ltd., as their listed peers. They are trading at a P/E of 104, and 71.5 (as of November 22, 2024). However, they are not truly comparable on an apple-to-apple basis. The peers compare is nothing but an eyewash.

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Cumulative Capital in the ongoing fiscal. The only listing took place so far listed with a premium of 37.5% on the listing date. 

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