Owais Metal NSE SME IPO review (Avoid)

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Review By Dilip Davda on February 21, 2024

•    OMMPL is in the manufacturing and processor of various metals and minerals. 
•    It got converted in the public limited company is April 2023.
•    The sudden boost in its bottom lines from FY23 onwards raises eyebrows and concern over its sustainability going forward. 
•    Based on its FY24 annualized super earnings, the issue appears fully priced. 
•    There is no harm in skipping this "High Risk/Low Return" bet.

ABOUT COMPANY:
Owais Metal and Mineral Processing Ltd. (OMMPL) is the manufacturer and processor of various metals and minerals. Uniquely diversified across the broad spectrum of natural resources with main interests in manufacturing and processing metal and minerals. The company is engaged in the manufacturing and processing of the following products.

1. Manganese Oxide (MNO)
2. MC Ferro Manganese
3. Manufacturing of Wood Charcoal
4. Processing of Minerals such as Ferro Alloy, Quartz and Manganese Ore.

Its products like Manganese Oxide is used in fertilizer industry and is also used by the Manganese Sulphate Plants. Manganese Ore is used in manufacturing of Ferro Manganese, Silico Manganese, Manganese Oxide, Batteries and other Ferro products also it can be directly sellable in the market. MC Ferro Manganese is used in steel and casting industries, as it assists in removing sulphur from steel and improve properties, like durability, machinability and malleability. It can deoxidize molten metal. 

Its Wood Charcoal is used in furnaces of industries which requires high heat for their manufacturing process such as Steel industry. Processed Quartz is being used hotel industry, Ferro Alloys industry, tiles & ceramic industry, glass industry and industry of interiors & furniture. As on date of filing of the offer documents, its major products are being supplied to the state of Madhya Pradesh, Maharashtra Punjab, Delhi and Gujrat.

The company has recently added new products to its portfolio these products are Wood Charcoal and Processed Quartz. The company has a manufacturing unit for wood charcoal at Rajasthan and Meghnagar. Processing of Quartz has been done through its Meghnagar plant. As of December 31, 2023, it had 25 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4907200 equity shares of Rs. 10 each (worth Rs. 42.69 cr. at the upper cap). It has announced a price band of Rs. 83 - Rs. 87 per share. The issue opens for subscription on February 26, 2024, and will close on February 28, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.99% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 19.78 cr. for purchase of equipments to facilitate manufacturing, Rs. 18.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Gretex Corporate Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. GRETEX group's Gretex Share Broking Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 200 per share (based on FV of Rs. 10) between March 2023 and June 2023. It has also given bonus shares in the ratio of 16 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.59, and Rs. 10.46 per share

Post-IPO, company's current paid-up equity capital of Rs. 13.28 cr. will stand enhanced to Rs. 18.18 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 158.19 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (as a proprietorship concern) posted a total income/net profit of Rs. 21.09 cr. / Rs. 0.24 cr. (FY21), Rs. 28.33 cr. / Rs. 0.49 cr. (FY22), and Rs. 39.74 cr. / Rs. 5.41 cr. (FY23). Thus the sudden jump in bottom lines not only raise eyebrows, but also appears to be a window dressing to match the asking price. 

For 3Qs of FY24 ended on December 31, 2023, as a public limited concern, it earns a net profit of Rs. 7.66 cr. on a total income of Rs. 39.78 cr. Thus its top and bottom lines surge raise eyebrows and concern over its sustainability going forward.

For the ongoing fiscal, it has posted an EPS of Rs. 5.85 and an RoNW of 36.06%. The issue is priced at a P/BV of 5.37 based on its NAV of Rs. 16.21 as of December 31, 2023. The IPO ad is missing data on its post-IPO NAV on lower and upper price band basis. 

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 around 15.50. Thus the issue appears fully priced. 

For the ongoing fiscal, the company has posted PAT margins of 19.37% (3Qs-FY24), and RoCE margins of 41.73% respectively for the referred periods. (On non-annualized basis).

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 Impex Ferro, and Indian Metal as their listed peers. They are trading at a P/E of NA and 9.11 (as of February 21, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 22nd mandate from Gretex Corporate in the last three fiscals, out of the last 10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 4.26% to 90% on the date of listing.

Owais Metal and Mineral Processing IPO FAQs