Innomet Advanced NSE SME IPO review (May apply)

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Review By Dilip Davda on September 8, 2024

•    The company that was primarily in diamond tools has diversified into Metal Powder and THA products.
•    While it posted growth in its top lines for the reported periods, it marked inconsistency in its bottom lines. 
•    It has an order book worth Rs. 8.54 as of March 31, 2024.
•    Based on FY24 earnings, the issue relatively appears exorbitantly priced. 
•    Well-informed investors may park moderate funds for long term.

ABOUT COMPANY:
Innomet Advanced Materials Ltd. (IAML) is engaged into manufacturing of Diamond Tools and later on through backward integration, started manufacture of Metal Powders (Ferrous, Non-Ferrous and their Alloys). Further with R&D got into manufacture of Tungsten Heavy Alloys (THA).

Manufacture of "METAL POWDERS & TUNGSTEN HEAVY ALLOYS" comes under the gamut of "POWDER METALLURGY". The Company has all the necessary  infrastructure for the development and manufacture of Metal Powders and Tungsten Heavy Alloys. To update itself technologically, the Company associates with the senior most scientists in the world and with renowned Research Organizations in India for continuous development of various Powder Metallurgy (PM) products. 

The Company has also started/conducted in-house experiments to develop products required by the end users. Innomet has been found to be in conformity with the Quality Management System Standard: ISO 9001:2015 with a scope of manufacturing and supply of Ferrous & Non-Ferrous Metal/Alloy Powders and Tungsten Heavy Alloy components.

IAML is currently catering to Powder Metallurgy Components, Diamond Tools, Welding, Brazing, Catalyst, Surface Coatings, Aesthetics and many others. It is passionate towards Innovation and developing new products for customers. The company encourages R&D divisions of the other companies to work with it in their projects related to Powder Metallurgy and assist them with infrastructure and expertise in whatever capacity it can for import substitution. It had an order book worth Rs. 1.15 cr. for Metal Powders and Rs. 7.39 cr. worth of THA division.

Innotung, is the brand name for "The Tungsten Heavy Alloy series" manufactured through Powder Metallurgy process by the Company. It supplies the material in the form of bars, plates, cubes, spheres and components of various sizes and shapes also in the finished machined condition as per customer drawings. As of March 31, 2024, it had 56 employees on its payroll and additional 21 contract workers. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3423600 equity shares of Rs. 10 each at a fixed price of Rs. 100 per share to mobilize Rs. 34.24 cr.  The issue opens for subscription on September 11, 2024, and will close on September 13, 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 26.46% of the post-IPO paid-up capital of the company. The company is spending Rs. 4.17 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 11.60 cr. for working capital, Rs. 7.88 cr. for capex on machinery and equipment, Rs. 2.09 cr. for repayment/prepayment of certain borrowings, and Rs. 8.50 for general corporate purposes. 

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Prabhat Financial Services Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 19 between August 2023 and September 2023. It has also issued bonus shares in the ratio of 1 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 6.26, Rs. 6.86, and Rs. 19.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.52 cr. will stand enhanced to Rs. 12.94 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 129.40 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 22.40 cr. / Rs. 0.55 cr. (FY22), Rs. 27.15 cr. / Rs. 3.22 cr. (FY23), Rs. 29.56 cr. / Rs. 2.52 cr. (FY24). It posted inconsistency in its bottom lines for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 5.36, and an average RoNW of 26.16%. The issue is priced at a P/BV of 6.36 based on its NAV of Rs. 15.73 as of March 31, 2024, and at a P/BV of 2.64 based on its post-IPO NAV of Rs. 37.83 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 51.28. The issue relatively appears exorbitantly priced.

For the reported periods, the company has posted PAT margins of 2.46% (FY22), 11.85% (FY23), 13.28% (FY24), and RoCE margins of 10.23%, 27.70%, 16.27% respectively for the referred periods. There appears to be some mismatch in PAT margins for FY23 and FY24.

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 no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Expert Global in the last four fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount, 1 at par and the rest listed with premiums ranging from 10.47% to 90% on the date of listing. 

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