Energy Mission NSE SME IPO review (May apply)

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Review By Dilip Davda on May 5, 2024

•    EMML is engaged in designing and manufacturing CNC, NC and conventional metal forming machines.
•    The company posted steady growth in its top lines for the reported periods.
•    The sudden boost in its bottom lines from FY22 onwards raise eyebrows.
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park moderate funds for the medium to long term rewards.

ABOUT COMPANY:
Energy Mission Machineries (India) Ltd. (EMML) is engaged in designing and manufacturing CNC, NC and conventional metal forming machines which caters to the industrial sector requirement for metal fabrication solutions. Its wide spectrum of metal forming machines includes press brake machines, shearing machines, plate rolling machines, iron workers machines, hydraulic presses and bus bar bending, cutting & punching machine. Through its array of products, the company provides manufacturers with vital precision machines which are required for metal cutting and forming operations.

EMML's machines are utilized across a wide gamut of industries such as automotive, steel, pre-engineered building, furniture, HVAC, agricultural equipments, road construction equipments, elevators, food processing machinery, metalworking workshops and many others. It offers over 600 variants of metal forming machines and during the last 3 Fiscals and the nine months' period i.e. Apr.'23 to Dec.'23, the Company has supplied 1657 machines to over 1150 customers. During the last 3 Fiscals and the nine months' period i.e. Apr.'23 to Dec.'23, it has sold products in India and several other countries across the globe which include USA, Switzerland, Russia, Nepal, Kenya, Uganda, UAE, Saudi Arabia and other Middle east countries. 

The company also provides machinery tools and spare parts such as Die punch, Shearing Blade, Roller Set, Holding Spring, Limit Switch, Foot Switch, Seal Kit, Linear Scale etc. which also aids in addressing after-sales support and services. For the Fiscal 2023, the company sold 500 machines to over 400 customers. Its ability to provide wide range of machines has helped in garnering customers engaged in various sectors such as metal fabrication, pre-engineered building, agriculture, kitchen equipments, machinery manufacturing, automotive, food processing, furniture, HVAC, elevators, steel etc. Further, in F.Y. 2022-23, it has successfully sold hydraulic shearing machine to CERN which is the European Organization for Nuclear Research based in Geneva, Switzerland.

EMML's manufacturing operations comprise, in addition, to its production lines, CNC Plasma cutting shop, machine shop, heavy fabrication shop, hydraulic Cylinder Shop, hydraulic power pack shop, Electrical Panel wiring, sheet metal shop, shot blasting chamber, paint booth chamber, assembly lines and testing facilities. It also outsources certain proportion of production process relating to zinc plating, powder coating, cylindrical grinding, hard chrome plating, hardening, honing etc. to third parties job workers. As of March 31, 2024, it had 256 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2982000 equity shares of Rs. 10 each to mobilize Rs. 41.15 cr. at the upper cap. It has announced a price band of Rs. 131 - Rs. 138 per share. The issue opens for subscription on May 09, 2024, and will close on May 13, 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 26.33% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 6.86 cr. for capex on civil construction at existing manufacturing unit, Rs. 7.43 cr. for capex on new plant and machinery, Rs. 15.00 cr. for working capital, and the rest for general corporate purposes.

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

The company issued initial equity capital at par value and there after it raised further equity at a fixed price of Rs. 32 per share (FY Rs. 10), between September 2018 and January 2019. It has also issued bonus shares in the ratio of 2 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 6.05, Rs. 6.14, and Rs. 6.26 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.34 cr. will stand enhanced to Rs. 11.33 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 156.31 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 48.34 cr. / Rs. 0.95 cr. (FY21), Rs. 79.07 cr. / Rs. 3.36 cr. (FY22), and Rs. 100.66 cr. / Rs. 7.90 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it (on a consolidated basis) earned a net profit of Rs. 6.75 cr. on a total income of Rs. 84.00 cr.

For the last three fiscals, it has reported an average EPS of Rs. 6.27, and an average RoNW of 25.25%. The issue is priced at a P/BV of 3.80 based on its NAV of Rs. 36.29 as of December 31, 2023. The IPO ad is missing the post-IPO NAV data on the lower and upper price band.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.38. 

For the reported periods, the company has posted PAT margins of 2.00% (FY21), 4.29% (FY22), 7.93% (FY23), 8.10% (9M-FY24), and RoCE margins of 10.12%, 17.15%, 28.08%, 21.86% respectively for the referred periods. 

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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Macpower CNC and Jyoti CNC as their listed peers. They are trading at a P/E of 76.6 and NA (as of May 03, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 41st mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 4.63% to 90% on the date of listing.

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