Containe Tech BSE SME IPO review (Avoid)

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Review By Dilip Davda on September 19, 2022

•    CTL is in the business of auto safety and GPS solution devices. 
•    Its performance so far has been minuscule and listless. 
•    Based on its FY22 earnings, the issue is exorbitantly priced. 
•    There is no harm in skipping this pricy issue. 

ABOUT COMPANY:
Containe Technologies Ltd. (CTL) is engaged in the business of Automobile Safety and GPS solutions in the Automobile Sector. It manufactures a wide range of technology-intensive electronic and mechanical automotive products. These have applications across vehicle segments, including four-wheeler passenger vehicles, light commercial vehicles, and heavy commercial vehicles.

The Company is manufacturing an electronic Speed Limiting Device (SLD), "MOTOREYE & LIMITS" Brand Electronic Fuel Regulator & Pedal Interface, suitable for the latest Vehicle of BS-IV Standards to the Oldest Vehicles. The Speed Limiting Devices are Tested and Approved by the Automotive Research Association of India (ARAI), Pune. It is suitable for all types of commercial transport categories of vehicles and educational institutions Buses. CTL is also manufacturing Vehicle Location Tracking Devices (VLTD), the "TRANOPRO" Brand, suitable for all types of vehicles. The Vehicle Location Tracking Devices are Tested and Approved by International Centre for Automotive Technology (ICAT). As of the date of filing this offer document, it had 18 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 2.07 cr.), general corporate purposes (Rs. 0.23 cr.), CTL is coming out with a maiden IPO of 1744000 equity shares of Rs. 10 each at a fixed price of Rs. 15 per share to mobilize Rs. 2.62 cr. The issue opens for subscription on September 20, 2022, and will close on September 22, 2022. The minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.93% of the post-IPO paid-up equity capital of the company. CTL is spending Rs. 0.32 cr. for this IPO. In the offer document, there has been a mismatch in issue expenses and general corporate expenses tally in the details of the object of the issue. (Refer to page no. 57 and 59). 

The issue is solely lead managed by Finshore Management Services Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued/converted further equity shares in the price range of Rs. 11 to Rs. 30 per share between December 2021 and May 2022. The average cost of acquisition of shares by the promoters is Rs. 11.50 and Rs. 12.38 per share. 

Post this IPO, CTL's paid-up equity capital of Rs. 4.50 cr. will stand enhanced to Rs. 6.24 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 9.37 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CTL has reported a turnover/net profit of Rs. 2.92 cr. / Rs. 0.05 cr. (FY20), Rs. 0.60 cr. / Rs. 0.01 cr. (FY21), and Rs. 2.07 cr. / Rs. 0.04 cr. (FY22). Thus it has posted inconsistency in its top and bottom lines for the reported periods. 

For the last three fiscals, CTL has posted an average EPS of Rs. 0.27 and an average RoNW of 1.46%. The issue is priced at a P/BV of 1.35 based on its NAV of Rs. 11.15 as of March 31, 2022, and at a P/BV of 1.16 based on its post-IPO NAV of Rs. 12.98 per share. 

If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 214. Thus the issue is exorbitantly priced. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, CTL has no listed peers to compare with. 

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

MERCHANT BANKER'S TRACK RECORD:
This is the 29th mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 2 at par, and the rest with premiums ranging from 0.9% to 150% on the day of listing.

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