KP Green BSE SME IPO review (Apply)

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Review By Dilip Davda on March 13, 2024

•    KPGEL is the flagship company of KP group that has emerged a leading player in renewable energy segment. 
•    This is the third IPO from the group, and this is the biggest SME IPO so far in the history.
•    It posted steady growth in its top and bottom lines for the reported periods. 
•    As of December 2023, it had Rs. 233+ cr. orders on hand.
•    Based on FY24 annualized earnings, the issue appears fully priced.
•    Considering the legacy of the group company's track record post listing, investors may lap it up for the medium to long term rewards. 

PREFACE:
This is the third IPO from K P Group in the last eight fiscals. It kept changing the Lead Manager (LM) for all the three IPOs that were made so far. For the first IPO of KP Energy Ltd. the LM was Aryaman Financial Services Ltd., for second IPO of KPI Green Energy Ltd. (erstwhile known as KPI Global Infrastructure Ltd.), LM was Vivro Financial Services Pvt. Ltd., and now for this IPO the LM is Beeline Capital Advisors Pvt. Ltd. First two companies have already migrated to main board. Both these companies have amply rewarded shareholders. Though the RHP has a date of March 05, 2024, it was not available on the designated exchange till March 12, 2024 afternoon. While the KP group is making hat trick of IPOs, this is the biggest SME IPO till date and thus, it is in the making of new record. KPGEL is the flagship company of the group. KP group is confident of maintaining the legacy. 

ABOUT COMPANY:
KP Green Engineering Ltd. (KPGEL) was formerly known as K. P. Buildcon Pvt. Ltd. It is a part of Gujarat based KP Group. KP Group consists of more than 30 companies across India, all playing vital role in the robust growth of the organization. KP Group has achieved its growth through diversification into various sectors including fabrication and galvanizing, renewable energy sector (Solar & Wind), Telecom Infrastructure (Telecom Towers and OFC Network set up) and Green Hydrogen and Ammonia showcasing its commitment to sustainable and innovative solutions.

Incorporated in 2001, the company manufactures fabricated and hot-dip galvanized steel products. Its diverse range of products includes Lattice Towers Structures, Substation Structures, Solar Module Mounting Structures, Cable trays, earthing strips, Beam Crash Barriers and other infrastructure solution products aligning with its motto "A Company to Solve the Difficulties". It provides in-house fabrication and Hot Dip Galvanizing facilities enabling tailor-made solutions to clients and end-to-end solutions by carrying out engineering, designing, fabrication, galvanization, and deployment. The company is an accredited vendor with GETCO (Gujarat Energy Transmission Corporation Limited) and MSETCL (Maharashtra State Electricity Transmission Company) for up to 400 Kw and 220 Kw, respectively. KPGEL operates through its manufacturing facility located at Dabhasa, Vadodara - 391440, Gujarat, spread across an area of 200,000 sq. ft., fully equipped with CNC machinery and equipment. It is ISO 9001:2015 certified company, demonstrating capabilities to deliver quality products and services to its end users, having direct relationship with reputation, customer satisfaction and long-term success. It has in-house, well equipped quality control laboratory (for pre and post-production quality checks) to meet the demanding needs of diversified customers. 

It has achieved a strong and stable market position through a continued focus on evolving technologies, quality control and customer service. Apart from above it also provides Fault Rectification Services (FRT) w.r.t. Optical Fiber Cables to various telecom operators, Job work for galvanizing and Solar Installation services as part of its service portfolio. The company is further planning to expand into existing line of business along with addition of new products to its portfolio at new manufacturing plant proposed to be set up at Matar, Bharuch. The new facility will have a capacity of more than 2,90,000 MT, a substantial increase from its current capacity of 53,000 MT at existing plant. In addition to product offerings, the company is planning to introduce new line of products including High Masts, Floor Gratings, Pre-Engineered Buildings and Heavy Fabrications to meet evolving market demands. As of September 30, 2023, it had total 81 Employees on its payroll. The company has orders on hand worth Rs. 233+ cr. for 69 projects as of December 31, 2023. According to the management, these orders normally gets completed in 40-50 days. This indicates likely scenario by the close of FY24 financials with commensurate rise in its top and bottom lines, making this IPO reasonably priced. 

 
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 13160000 equity shares of Rs. 5 each to mobilize Rs. 189.50 cr. at the upper end. It has announced a price band of Rs. 137 - Rs. 144 per share. The issue opens for subscription on March 15, 2024, and will close on March 19, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.32% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 156.15 cr. for capex on new manufacturing unit being set up and expanding is current product portfolio, and rest for general corporate purposes.

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

There is a wrong info on underwriting amount data on the page no. 60 of the offer document. Against an underwriting amount of Rs. 189.50 cr. as 100%, it has shown Rs. 13.16 cr. as 100%.

The company has issued initial equity capital at par, the company issued further equity shares in the price range of Rs.  32.00 - Rs. 108 (on the basis of Rs. 5 FV) between October 2008 and has issued bonus shares in the ratio of 15 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. NIL per share.  

Post-IPO, company's current paid-up equity capital of Rs. 18.42 cr. will stand enhanced to Rs. 25.00 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 720.00 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a standalone basis) posted a total income/net profit of Rs. 38.84 cr. / Rs. 1.58 cr. (FY21), Rs. 78.42 cr. / Rs. 4.55 cr. (FY22), and Rs. 114.79 cr. / Rs. 12.40 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 11.27 cr. on a total income of Rs. 104.14 cr. 

On a consolidated basis for FY23 it posted a total income of Rs. 114.79 cr. with a net profit of Rs. 12.40 cr., and for H1 of FY24, it earned a net profit of Rs. 11.27 cr. on a total income of Rs. 104.14 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 2.23, and an average RONW of 27.89%. The issue is priced at a P/BV of 11.69 based on its NAV of Rs. 12.32 as of September 30, 2023, and at a P/BV of 3.08 based on its post-IPO NAV of Rs. 46.73 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 31.93. Thus the issue is fully priced. 

For the reported periods, the company has posted PAT margins of 4.10% (FY21), 5.85% (FY22), 10.85% (FY23), 10.84% (H1-FY24), and RoCE margins of 13.47%, 21.01%, 42.48%, 23.05% respectively for the referred periods. 

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 shown Salasar Techno and Skipper Ltd., as their listed peers. They are trading at a P/E of 60.9 and 38.8 (as of March 13, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 33rd mandate from Beeline Capital in the last two fiscals, out of the last 10 listings, all listed with premiums ranging from 6.58% to 200% on the date of listing. 

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