Paramount Spl. NSE SME IPO review (May apply)

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Review By Dilip Davda on September 14, 2024

•    The company is engaged in the manufacturing of diverse range of steel forgings used by wide range of industries.
•    It marked growth in its top and bottom lines for the reported periods.
•    Based on FY24 earnings, the issue relatively appears fully priced.
•    It is operating in a highly competitive and fragmented segment.
•    Well-informed investors may park moderate funds for long term. 

ABOUT COMPANY:
Paramount Speciality Forgings Ltd. (PSFL) is the manufacturers of steel forgings in India offering a diverse range of forged products. It has developed business and scale of operations since its founding in 1996 and have invested in a variety of machinery to boost and diversify manufacturing capabilities. The company can now manufacture and provide forged components ranging in weight from 1Kg to 4 metric tons in rough or finish-machined condition. PSFL's products are manufactured in accordance with National and International standards and is used in a wide range of industrial applications catering to the extensive requirements of Petrochemicals, Chemicals, Fertilizers, Oil and Gas, Nuclear Power, and other heavy engineering sectors.

PSFL has as an organization established, implemented, and maintained an Integrated Management System (IMS), including the processes needed and their interactions, to achieve the intended outcome, including enhancing environmental and OH and S performance. It owns and operates two manufacturing facilities, with one in Kamothe and one in Khalapur, Maharashtra. Its Closed Die Forging Plant shop is equipped with two pneumatic air hammers 2T and 5T and a Drop Forge Hammer of capacity 1.5 MT that are capable of producing single piece forgings weighing up to 120 Kgs. range of Products Including Flanges, Non-standard Forgings, Valve Components, Gear Rings and Blanks, Bearing Races, Slew Rings, Turbine Rings, and other Customized Forgings in all grades of Carbon, Alloy, Stainless, Duplex, Super Duplex and Other Nickel Alloy based materials. As of August 31, 2024, it had 155 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo book building route IPO of 5482000 equity shares of Rs. 10 each to mobilize Rs. 32.34 cr. at the upper cap of the price band. It has announced a price band of Rs. 57 - Rs. 59 per share. The issue consists of 4802000 fresh equity shares (worth Rs. 28.33 cr. at the upper cap), and an Offer for Sale (OFS) of 680000 equity shares (worth Rs. 4.01 cr. at the upper cap). The issue opens for subscription on September 17, 2024, and will close on September 19, 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 27.85% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, the company will utilize Rs. 23.81 cr. for capex on machinery and equipments for expansion plans, and the rest for general corporate purposes. 

The issue is solely lead managed by Swaraj Shares & Securities Pvt. Ltd., and Purva Sharegistry (India) 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 15.01% by Swaraj Shares and 84.99% by Shreni Shares.

The company has issued initial equity shares at par value, and has also issued bonus shares in the ratio of 1487 for 1 in September 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA. 

Post-IPO, company's current paid-up equity capital of Rs. 14.88 cr. will stand enhanced to Rs. 19.68 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 116.12 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 92.43 cr. / Rs. 3.13 cr. (FY22), Rs. 112.24 cr. / Rs. 2.76 cr. (FY23), and Rs. 113.64 cr. / Rs. 7.25 cr. (FY24).  Thus while it posted growth in its top line, it marked inconsistency in bottom lines with a big jump for FY24, that surprises all.  

For the last three fiscals, it has reported an average EPS of Rs. 2888.59 (on pre-bonus basis) and an average RoNW of 47.81%. The issue is priced at a P/BV of 4.46 based on its NAV of Rs. 13.24 as of March 31, 2024, and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 30.52 per share (at the upper cap).

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 15.99. Based on FY23 earnings, the P/E stands at 42.14. Thus the issue is relatively fully priced discounting all near term positives.

The company reported PAT margins of 3.58% (FY22), 2.50% (FY23), 6.43% (FY24), and RoCE margins of 0.24%, 0.30%, 0.40% for the referred periods, respectively.

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.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Swaraj Shares in the last three fiscals (including the ongoing one). Out of the last 7 listings, 1 opened at discount, 1 at par and the rest with premiums ranging from 15.38% to 90% on the date of listing.

Paramount Speciality Forgings IPO FAQs