Mandeep Auto NSE SME IPO review (Apply)

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Review By Dilip Davda on May 8, 2024

•    The company is in the business of manufacturing and supplying sheet metal components, auto parts and specialized components for diverse industries.
•    It has marked steady growth in its top and bottom lines. 
•    The company is on capacity expansion spree to meet rising demand and that augurs well.
•    Based on FY24 annualized earnings, the issue is fully priced. 
•    Investors may consider parking of funds for the medium to long term rewards.

ABOUT COMPANY:
Mandeep Auto Industries Ltd. (MAIL) is engaged in the business of manufacturing and supplying sheet metal components, auto parts, and all types of sprocket gears and machined components, that finds its application in a diverse industry, such as tractor, automobiles, material handling & earth moving equipment, railways, defense, machine tools, DIY industry etc.

It manufactures these products from Manufacturing Unit. Its manufacturing facilities has advanced technologies to develop and manufacture the products that adhere to the stringent quality control requirements of customer. It also manufactures customized components as per customer specific requirements and use, with high degree of precision both in quality and time with personalized services to strong customer base in India. It is a preferred partner for two wheeler industry for specialized products. 

Its focus is to consistently expand product portfolio by developing new designs. The company believes that it shares a longstanding relationship with customer and receive majority of business from repetitive clients. The company constantly engages with customers through marketing via personal interactions and updating them on MAIL's capabilities and strengths. Its sales team works closely with customers to obtain their insights and feedback about the upcoming trends in the industry which enables the company to develop and improve products to fulfil the requirements of the market.

As on the date of this Prospectus, Company has 54 employees on its payroll and additional 15 contract labourers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3768000 equity shares of Rs. 10 each at a fixed price of Rs. 67 per share to mobilize Rs. 25.25 cr. The issue opens for subscription on May 13, 2024, and will close on May 15, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 36.45% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.00 cr. for this IPO process and from the net proceeds of the IPO, it will utilize Rs. 9.08 cr. for expansion of existing unit, Rs. 6.84 cr. for repayment/prepayment of certain borrowings, Rs. 6.09 cr. for working capital, and Rs. 2.23 cr. for general corporate purposes. 

The issue is solely lead managed by Jawa Capital Services Pvt. Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Aftertrade Broking Pvt. Ltd. is the market maker for the company. 

After issuing initial equity capital at par the company issued further equity shares at a fixed price of Rs. 67 per share in August 2023, and has also issued bonus shares in the ratio of 141 for 25 in the same month. The average cost of acquisition of shares by the promoters is Rs. 1.51 and Rs. 10.01 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 6.57 cr. will stand enhanced to Rs. 10.34 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 69.26 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (as a proprietor entity) posted a total income/net profit of Rs. 15.64 cr. / Rs. 0.50 cr. (FY21), Rs. 21.90 cr. / Rs. 0.65 cr. (FY22), and Rs. 29.79 cr. / Rs. 1.05 cr. (FY23). As a proprietary concern, for Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 0.22 cr. on a total income of Rs. 5.15 cr. As it became a public limited company on July 01, 2023, for the six months' period from July 01, 2023 to December 31, 2023, it posted a net profit of Rs. 2.15 cr. on a total income of Rs. 16.57 cr. On a combined basis, for 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 2.37 cr. on a turnover of Rs. 21.71 cr.

According to the management, with its major thrust on high margin products like Sprocket Gear and other specialized auto component, it could lift the bottom line and this trends are likely to continue post expansion with capacity addition. The company is currently a Tier-II category supplier and is likely to emerge as Tier-1 supplier in the primary market and it has plan afoot to enter the secondary market with additional output from expanded capacities. 

As the company was formed only on July 01, 2023, it has posted an EPS of 6.60 for the 6M period from July 01, 2023 to December 31, 2023, and RoNW of 25.97% for the said period. It has posted an average RoNW of 19.74% as a proprietary concern for the last three fiscals. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 21.97. Thus the issue appears fully priced. 

For the reported periods, the company has posted RoCE margins of 24.61% (FY21), 17.02% (FY22), 28.18% (FY23), 6.40% (Q1-FY24), 27.94% (Q2 n Q3-FY24). However, PAT margin info is missing from its KPI data. 

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 Kranti Ind., Porwal Auto, and Lumax Auto Techno, as their listed peers. They are trading at a P/E of 32.8, 42.8, and 28.7 (as of May 08, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 2nd mandate from Jawa Capital in the ongoing fiscals, and the last mandate of Slone Info is yet to be listed.

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