GP Eco NSE SME IPO review (May apply)

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Review By Dilip Davda on June 11, 2024

•    The company is primarily engaged as a distributor for solar inverters and panels.
•    It marked steady growth in its top and bottom lines from FY21 to FY23.
•    The sudden boost in its bottom lines for 9M-FY24 raise eyebrows and concern over its sustainability going forward.
•    Based on FY24 super annualized earnings, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park moderate funds for long term rewards.

ABOUT COMPANY:
GP Eco Solutions India Ltd. (GESIL) is involved in the distribution of a wide range of solar inverters and solar panels. The company is an authorized distributor of Sungrow India Pvt Ltd or "Sungrow" for Solar Inverters in North India, and is also authorized distributors for Saatvik Green Energy Private Limited or "Saatvik" and LONGi Solar Technology Co. Ltd or "LONGi" for solar panels in North India. Additionally, it serves as an integrated solar energy solutions provider, delivering comprehensive engineering, procurement, and construction ("EPC") services to commercial and residential customers, however the contribution of this segment is comparatively less as compared to business of distribution of solar inverters and solar panels.

The company also has its own brand called "Invergy". Under the Invergy brand, it sells hybrid solar inverters and lithium ferro phosphate (LFP) batteries. Invergy deals in OEM manufacturing for hybrid and LFP products. Invergy has its own quality and reliable protocol for contract manufacturing of these products. Invergy manages its own supply chain stream to provide easy and comfortable transitions. The company generates around 15% revenue on own brands and the rest from third party brands, and has B2B sales of around 99.9% and balance from B2C as of December 31, 2023. As of the date of RHP, it had 16 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3276000 equity shares of Rs. 10 each to mobilize Rs. 30.79 cr. at the upper cap. It has announced a price band of Rs. 90 - Rs. 94 per share. The issue opens for subscription on June 14, 2024, 2024, and will close on June 19, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.97% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 12.45 cr. for working capital, Rs. 7.60 cr. for investment in subsidiary (Invergy India), and the rest for general corporate purposes. 

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. SS Corporate Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 50 per share in January 2024, and has also issued bonus shares in the ratio of 35 for 1 in December 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.28 and Rs. 11.46 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.43 cr. will stand enhanced to Rs. 11.71 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 110.08 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 46.53 cr. / Rs. 0.97 cr. (FY21), Rs. 83.53 cr. / Rs. 2.77 cr. (FY22), and Rs. 104.48 cr. / Rs. 3.70 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 4.73 cr. on a total income of Rs. 78.59 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 4.07, and an average RoNW of 71.52%. The issue is priced at a P/BV of 5.21 based on its NAV of Rs. 18.03 as of December 31, 2023, and at a P/BV of 2.20 based on its post-IPO NAV of Rs. 42.65 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.44. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 2.08% (FY21), 3.32% (FY22), 3.54% (FY23), 6.02% (9M-FY24), and RoCE margins of 30.16%, 44.15%, 14.24%, 26.51% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Sungarner Energies as their listed peers. It is trading at a P/E of 93.0 (as of June 11, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from Corporate Capital in the last four fiscals (including the ongoing one), out of the last 11 listings, all listed with premiums ranging from 17.65% to 245.24% on the listing date. 

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