HVAX Techno NSE SME IPO review (May apply)

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Review By Dilip Davda on September 26, 2024

•    The company is engaged in HAVC project contracting along with related services.
•    It serves primarily pharma/healthcare/FMCG sector customers.
•    It marked growth in its top and bottom lines for the reported periods.
•    The sustainability of its margins is the major concern as it operates in a highly competitive segment.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for medium term. 

ABOUT COMPANY:
HVAX Technologies Ltd. (HTL) is engaged in HAVC project contracting and has developed expertise in undertaking turnkey projects on engineering, procurement and execution of controlled environment infrastructure and cleanrooms along with design, engineering and consultancy services for pharma and healthcare companies.

Its customers also include chemical companies, hospitals, healthcare companies, and FMCG companies. a part of turnkey projects, the company supply few third party manufactured products. As a turnkey solution company, it is a "design-to-delivery" controlled environment infrastructure and cleanroom solutions provider with the ability to provide end to end solution encompassing designing, engineering, procurement, installation, testing, commissioning, management and operational support for a wide range of customers primarily in the pharmaceutical, healthcare, hospital and biotech sector across India and internationally. It engages with customers directly and also indirectly as a sub-contractor to the main contractor where it is assigned specific work scope. Further, it also engages third-party contractors for undertaking civil, mechanical and structural works. 

Under its design, engineering and consultancy service vertical the company offers engineering consultancy, GAP analysis and validation, containment consultancy, technology transfer and project feasibility studies for customers in the pharma space. Since incorporation, the Company has completed around 200 projects in India and across 15 countries, namely Algeria, Ethiopia, UAE, Ghana, Kenya, Nepal, New Zealand, Nigeria, Saudi Arabia, Sri Lanka, South Africa, Tanzania, Uganda, Zimbabwe etc.  As on August 31, 2024 it had 125 permanent employees and 21 temporary employees in addition to the contract labours that it employs in projects. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 7320000 equity shares of Rs. 10 each to mobilize Rs. 33.53 cr. (at the upper cap of the IPO price band). The issue opens for subscription on September 27, 2024, and will close on October 01, 2024. The company has announced a price band of Rs. 435 - Rs. 458 per share. The minimum application to be made is for 300 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.36% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 21.70 cr. working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Fedex Securities Pvt. Ltd., while KFin Technologies Ltd. Is the registrar to the issue, and Aftertrade Broking Pvt. Ltd. Is the market maker. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 50 - Rs. 618 per share between March 2012 and March 2024, and has also issued bonus shares in the ratio of 2 for 1 in April 2024.  The average cost of acquisition of shares by the promoters is Rs. 4.54 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.05 cr. will stand enhanced to Rs. 2.78 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 127.18 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 68.79 cr. / Rs. 4.18 cr. (FY22), Rs. 96.14 cr. / Rs. 5.20 cr. (FY23), Rs.  107.47 cr. / Rs. 9.39 cr.  (FY24). The sustainability of the margins posted by the company is the major concern. 

For the last three fiscals, it has reported an average EPS of Rs. 32.15 and an average RoNW of 31.23%. The issue is priced at a P/BV of 3.06 based on its NAV of Rs. 149.63 as of March 31, 2024, and at a P/BV of 1.98 based on its post-IPO NAV of Rs. 230.92 per share (at the upper cap).

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 13.54. Based on FY23 earnings, the P/E stands at 24.44. Thus the issue relatively appears fully priced. 

The company reported PAT margins of 6.13% (FY22), 5.42% (FY23), 8.85% (FY24), and RoCE margins of 26.91%, 22.20%, 25.17% 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 shown Ahlada Engineers, as their listed peer. It is trading at a P/E of 10.0, (as of September 26, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 34th mandate from Fedex Securities in the last four fiscal. Out of the last 10 listings, all opened at a premiums ranging from 0.14% to 90% on the date of listing.

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