Jayant Infra BSE SME IPO review (Avoid)

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Review By Dilip Davda on June 27, 2022

•    JIL is engaged in the business of railway infrastructure developments. 
•    It marked a quantum jump in the top and bottom lines for FY20.
•    It posted an almost static performance for FY20, FY21 & 9M-FY22.
•    Considering small equity post IPO, its migration to the mainboard has longer gestation.
•    Based on its current earnings, the issue is fully priced. 

ABOUT COMPANY:
Jayant Infratech Ltd. (JIL) is engaged in the field of Railway Infrastructure Development involving the design, drawing, supply, erection and Commissioning of 25KV, 50Hz Single Phase Traction Overhead Equipment. The key clients of the Company include various zones of the Indian Railways like Eastern Railway, South Eastern Railway, South East Central Railway, Northern Railway, East Coast Railway, North Frontier Railway, East Central Railway, Central Organization for Railway Electrification (CORE) as well as large Public and Private Sector. 

Its major work encompasses the electrification of new & existing Railway tracks helping the nation to reduce the dependability of fossil fuels thereby reducing the carbon print foot. JIL's services include concept to commissioning of Railway Infrastructure right from design to energization. It has completed hundreds of km of electrification & erected several traction substations in a span of 20 years. 

The Company is based out in Chhattisgarh and this gives it an opportunity to offer services to coal mines. Usually, coal mines in Chhattisgarh have to develop siding which is used to load and transport coals from mines to their respective customers. A siding, in rail terminology, is a low-speed track section distinct from a running line or through routes such as the main line, branch line, or spur. It may connect to through track or to other sidings at either end. Sidings often have lighter rails, meant for lower speed or less heavy traffic, and few, if any, signals. JIL has over the years developed many siding in the state to facilitate coal mines. 

The Company has kept its focus on the Electrification sector of the Railways keeping in view the vast scope of work in the existing and the untapped areas. As a result, the Company has been able to build its resources capable of executing large, medium and small electrification projects in the most efficient and timely manner. The Company first made forays into a highly technical field, overhead electrification of the Indian Railways and through a series of events over the successive years made rapid and spectacular progress in its chosen field of work with dedication, teamwork, commitment, discipline and astute planning and strategy, scaled newer heights of progress and glory. 

As of the filing of the offer document, the company had 7 employees on its payroll. It uses contract labours on sites based on workloads. 

 ISSUE DETAILS/CAPITAL HISTORY: 
To part finance its needs for the payment of security deposit for rented office (Rs. 3.00 cr.), working capital (Rs. 1.20 cr.), general corporate purposes (Rs. 1.49 cr.), JIL is coming out with a maiden combo IPO of 924000 equity shares of Rs. 10 each at a fixed price of Rs. 67 per share to mobilize Rs. 6.19 cr. The issue opens for subscription on June 30, 2022, and will close on July 05, 2022. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.56% of the post-IPO paid-up capital of the company. JIL will be spending Rs. 0.50 cr. for this IPO process. This indicates a fully structured process for this IPO with funding arrangements. 

The issue is solely lead managed by Gretex Corporate Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Gretex Share Broking Pvt. Ltd. is the market maker for this IPO.

After issuing initial equity shares at par, JIL issued further equity in the price range of Rs. 25 to Rs. 500 per share between May 2005 and December 2021. The average cost of acquisition of shares by the promoters is Rs. 57.11 per share.  

Post-IPO, JIL's current paid-up equity capital of Rs. 2.31 cr. will stand enhanced to Rs. 3.24 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 21.68 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, JIL has posted turnover/net profits (loss) of Rs. 18.48 cr. / Rs. 0.70 cr. (FY19), Rs. 34.17 cr. / Rs. 1.32 cr. (FY20) and Rs. 35.51 cr. / Rs. 1.40 cr. (FY21). For the first nine months of FY22 ended on December 31, 2022, it has earned a net profit of Rs. 1.13 cr. on a turnover of Rs. 24.15 cr. Though it has posted static performance for the last two fiscals, the quantum jump in the top and bottom line for FY20 compared to previous fiscals raises eyebrows. 

For the last three fiscals, JUL has posted an average EPS of Rs. 5.86 and an average RoNW of 9.40%. The issue is priced at a P/BV of 1.02 based on its NAV of Rs. 66.02 as of March 31, 2021, and at a P/BV of 0.98 based on its post-IPO NAV of Rs. 68.28 per share. Thanks to hefty premiums collected on equity issue post-February 2005 which boosted its NAV.  

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity capital, then the asking price is at a P/E of 14.44. Thus the issue appears fully priced based on its current earnings. 

COMPARISON WITH LISTED PEERS:
As per the offer document, JIL has shown BCPL Railway and Larsen & Toubro as its listed peers. They are currently trading at a P/E of 7.7 and 27.37 (as of June 27, 2022). Company showing L & T as its listed peer is raising eyebrows. However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Gretex Corporate in the last four fiscals (including the ongoing one). Out of the last 8 listings, 2 opened at discount and the rest with premiums ranging from 0.05% to 21.90% on the day of listings. It has an average track record. 

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