Jay Bee Laminations NSE SME IPO review (May apply)

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Review By Dilip Davda on August 24, 2024

•    The company is in the business of manufacturing and supplying CRGO and CRNGO steel cores for transformer manufacturing.
•    The company posted growth in its top and bottom lines for the reported periods.
•    Based on FY24 earnings, the issue appears fully priced. 
•    The company is operating in highly competitive and fragmented segment.
•    Well-informed investors may park moderate fund for medium term.

ABOUT COMPANY:
Jay Bee Laminations Ltd. (JBLL) is engaged in the business of supplying Cold Rolled Grain Oriented Silicon Steel (CRGO) Cores and Cold-Rolled Non-Grain-Oriented (CRNGO) Steel Cores 

Established in 1988, Jay Bee Laminations Limited, currently manufactures and supplies range of products such as electrical laminations, slit coils, and assembled cores made of Cold Rolled Grain Oriented Silicon steel and Cold-Rolled Non-Grain-Oriented Steel for applications in transformers, UPS, and inverters, for end-use in power industry.

The Company's manufacturing units are equipped with all in-house facilities for slitting, cutting, assembling, and testing of CRGO and CRNGO electrical steel cores spread across total area of 10,878 sq. mt. JBLL also has in-house laboratory for raw material and finished goods sample testing and in-house tooling division for blade sharpening. Its production facilities emphasize on processing and manufacturing electrical steel cores to meet the quality standards of power and distribution transformers. Its current facilities are well equipped to serve customer manufacturing transformers up to 220 kV class.

Presently, the Company's main focus is on supplying CRGO electrical steel cores to transformer manufacturers. These materials necessitate a high level of expertise in manufacturing, handling, and processing due to their sensitivity to physical stresses and jerks, which is vital for ensuring the safety and quality of transformers. Adhering to strict quality requirements, all transformer core-related raw materials imported, purchased, and sold in India must conform to the standards set by the Bureau of Indian Standards (BIS).

JBLL's clientele encompasses manufacturers producing transformers in the range of 11kVto 220 kV class, spanning Power and Distribution transformers. The quality of these transformers relies significantly on the raw materials used in their manufacturing, with the CRGO steel core accounting for 25-30% of the transformer's total cost depending on the size of the transformer. Additionally, the core plays a crucial role in reducing transmission and distribution (T&D) losses within the electricity supply infrastructure, highlighting its pivotal significance in the realm of power distribution. As of July 31, 1014, it had 310 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO with an overall size of 6093000 equity shares of Rs. 10 each to mobilize Rs. 88.96 cr. at the upper cap. The issue constitutes 4570000 fresh equity shares worth Rs. 66.72 cr. (at the upper cap) and an offer for sale of 1523000 shares worth Rs. 22.24 cr. (at the upper cap). It has announced a price band of Rs. 138 - Rs. 146 per share. The issue opens for subscription on August 27, 2024, and will close on August 29, 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 27.00% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 43.00 cr. for working capital, and the rest for general corporate purposes. There appears to be some mismatch as on page 109 of the offer document, gross proceeds from the fresh issue is shown as Rs. 43.00 cr. A clarification from the Lead Manager and the promoter is sought for. 

The issue is solely lead managed by Swaraj Shares and Securities Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Swaraj Shares and the rest 85% by Shreni Shares.

The company has issued entire initial equity shares at par value (based on Rs. 10 FV) so far and has also issued bonus shares in the ratio of 0.666 for 1 in October 1993, 1 for 2 in March 1995, 0.333 for 1 in July 1995, 0.347 for 1 in March 1996, and 5 for 1 in October 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.36, Rs. 1.32, and Rs. 1.40 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.00 cr. will stand enhanced to Rs. 22.57 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 329.49 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 141.67 cr. / Rs. 5.95 cr. (FY22), Rs. 247.49 cr. / Rs. 13.60 cr. (FY23), Rs. 303.50 cr. / Rs. 19.35 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 8.43, and an average RoNW of 29.03%. The issue is priced at a P/BV of 4.18 based on its NAV of Rs. 34.90 as of March 31, 2024, and at a P/BV of 2.64based on its post-IPO NAV of Rs. 55.37 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.02, and based on FY23 earnings, P/E stands at 24.21. Thus the issue appears fully priced based on FY24 earnings.

For the reported periods, the company has posted PAT margins of 4.21% (FY22), 5.51% (FY23), 6.39% (FY24), and RoCE margins of 21.10%, 34.55%, 39.23% 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 Vilas Transcore as their listed peers. It is trading at a P/E of 48.7 (as of August 23, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 7th mandate from Swaraj Shares in the last two fiscals (including the ongoing one), out of the last 6 listings, 1 listed at discount, 1 at par, and the rest listed with premiums ranging from 15.38% to 90% on the date of listing. However, the data shown on page no. 260 of the offer document is differing the conventional style of data presentation and appears a bit confusing.

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