BikeWo Green NSE SME IPO review (May apply)

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Review By Dilip Davda on September 14, 2024

•    The company is an emerging EV-two wheeler retailer in India.
•    It is operating with third party and franchisee model of business
•    It posted growth in top lines, but bottom lines marked inconsistency.
•    Based on FY24 earnings, the issue appears aggressively priced.
•    Well-informed/cash surplus investors may park moderate fund for long term. 

ABOUT COMPANY:
BikeWo Greentech Ltd. (BGL) is an electric two wheeler retailer in India. It commenced business operations in 2016 and revenue from operations have been steady since then. The Company since its incorporation had been engaged in the business of buying and selling of used four wheelers from authorised dealers of reputed automobile brands ("New Car Dealers"). 

As part of its pre-owned vehicle sale business, it procures used cars from New Car Dealers, who are approached by prospective customers, who wish to sell or exchange their existing vehicles for a new vehicle. Post procuring used cars through such channels, BGL further displays them for sale at various sites/ park and sell outlets of designated used car dealers. The company act as an intermediate channel between the New Car Dealers and its designated park and sell used car lots, by supplying the used cars for sale and earning a margin during the sale of such cars. 

It has created a small network which undertakes every element of automobile buying from searching for a vehicle, creating buying requirements, price discovery, booking, certification to purchase and financing and doorstep delivery. In the year 2022, with the advent of electrical vehicles in India, in order to capitalise the opportunities and potential offered by the industry segment, BGL diversified its business operations by venturing into marketing and selling of electric vehicles and sold franchise of its brand to ten dealers during the first quarter of FY 2022, for opening and operating stores in Andhra Pradesh and Telangana.

Its electric vehicle business focuses on capturing the opportunity arising out of electrification of mobility in India by creating a multi-brand channel for EV two wheelers by offering franchise under its brand in the Tier - I, Tier-II and Tier-III cities. Its business model focuses on creating a dealership chain across Tier-II and Tier-III cities for setting up retail spaces which ensures high visibility and easy accessibility to customers. The company focuses on deepening its presence in the regions it operates in before venturing into new markets which has led it to establish brand presence in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat markets. 

The company plans to continue to deepen its store network in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and Gujarat; and also gradually plan to expand network in Rajasthan, Kerala, Karnataka and West Bengal in pursuing its defined cluster-focused expansion strategy. It operates business activities through dealership models. It offers three types of dealerships to dealers; (i) State Dealership; (ii) Diamond Dealership; and (iii) Platinum Dealership. As of March 31, 2024, it had 34 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3886000 equity shares of Rs. 10 each to mobilize Rs. 24.09 cr. at the upper cap of the price band. It has announced a price band of Rs. 59 - Rs. 62 per share. The issue opens for subscription on September 18, 2024, and will close on September 20, 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 Emerge. The issue constitutes 29.79%** of the post-IPO paid-up capital of the company. From the net proceeds of the issue, the company will utilize Rs. 6.00 cr. for purchase of electric two wheelers, Rs. 6.23 cr. for capex on setting up of eleven dealership stores in various states in India, Rs. 3.50 cr. for prepayment/repayment of certain borrowings, and the rest for general corporate purposes. 

** while on the number of shares on offer and post-IPO capital the dilution is at 29.79%, but the IPO price band ad/RHP shows 37.52% which appears to be wrong.

The issue is solely lead managed by Khandwala Securities Ltd.., Bigshare Services Pvt. Ltd. Is the registrar to the issue. Aftertrade Broking Pvt. Ltd. Is the market maker for the company. The issue is underwritten to the tune of 15% by Khandwala Securities and up to 85% by Aftertrade Broking. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 29 - Rs. 57 per share between March 2020 and November 2023. It also issued bonus shares in the ratio of 3 for 2 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 10.87, Rs. 12.09, Rs. 14.83, and Rs. 19.71 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.16 cr. will stand enhanced to Rs. 13.04 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 80.87 cr. Page no. 67 of RHP shows post-IPO equity capital at Rs. 130.43 lakh which is wrong, it should be Rs. 1304.33 lakh.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 13.92 cr. / Rs. 0.15 cr. (FY22), Rs. 20.62 cr. / Rs. 0.10 cr. (FY23), and Rs. 25.14 cr. / Rs. 1.67 cr. (FY24).  It marked growth in bottom lines with a big jump for FY24, that surprises all.  

For the last three fiscals, it has reported an average EPS of Rs. 1.37 and an average RoNW of 7.78%. The issue is priced at a P/BV of 3.39 based on its NAV of Rs. 18.31 as of March 31, 2024, and at a P/BV of ?? based on its post-IPO NAV of Rs. 62*** per share (at the upper cap).

*** post IPO NAV data appears to have been garbled. It shows the lower and upper price band itself as its NAV at the lower cap and upper cap post IPO, which is not correct.

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 48.44. Based on FY23 earnings, the P/E stands at 826.67. Thus the issue is aggressively priced discounting all near term positives.

The company reported PAT margins of 1.10% (FY22), 0.48% (FY23), 6.69% (FY24), and RoCE margins of 5.77%, 2.64%, 10.87% for the referred periods, respectively.

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.

COMPARISION 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 5th mandate from Khandwala Securities in the last two fiscals (including the ongoing one). Out of the last 4 listings, all listed at a premiums ranging from 7.35% to 90% on the date of listing. 

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