Pavna Ind NSE SME IPO review (May apply)

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Review By Dilip Davda on February 19, 2021

•    The company is engaged in auto component manufacturing and marketing.
•    PIL also does the marketing of products from its subsidiaries engaged in similar trade.
•    It has suffered a heavy setback during the pandemic period for the first half of FY21.
•    Lead manager has an average track record.

ABOUT COMPANY:
Pavna Industries Ltd. (PIL) along with its subsidiaries is engaged in the business of manufacturing automotive parts, providing solutions for automobile applications and serving automobile & other applications worldwide. Its focus is manufacturing quality & customer-oriented components, catering to Original Equipment Manufacturers (OEM) & providing automotive aftermarket solutions.

PIL has a diversified product portfolio, which consists of high-quality reliable parts such as Ignition Switches, Fuel Tank Caps, Latches, Auto Locks, Handles, Switches, Oil Pump, Carburetor, Throttle Body, Fuel Cocks, Injection System, Casting Components etc. We also provide aftermarket sales and services. Its aftermarket products include products manufactured such as filters, clutch plates, bearings, wiper blades and brake shoes.

The company has ultra-modern manufacturing plants in India, located in Aligarh (Uttar Pradesh), Aurangabad (Maharashtra), & Pantnagar (Uttarakhand). Its facilities are located in key auto-clusters and some of the facilities are in close proximity to the plants of OEM customers. The proximity of facilities to the plants of OEM customers also facilitates greater interaction with customers, thereby enabling it to respond to their requirements in a timely manner.

As of March 31, 2020, the company had a total workforce of 737 full-time employees (other than Directors) (including skilled, semi-skilled and unskilled employees).

Since the company engaged in manufacturing automotive components, its products were not categorized under the 'essential goods' and hence manufacturing facilities were shut down during this Pandemic. In view of the nationwide lockdown announced by the Government of India to control the spread of COVID-19, PIL's business operations were temporarily disrupted from March 24, 2020.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for partial repayment of loans from promoters group (Rs. 13.00 cr.) and general corporate funds (Rs. 1.62 cr.) needs, PIL is coming out with a maiden Initial Public Offer (IPO) of 1800000 equity shares of Rs. 10 each (Fresh issue of 902400 shares and offer for sale of 897600 shares) at a fixed price of Rs. 165 per share to mobilize Rs. 29.70 cr. The issue opens for subscription on February 24, 2021, and will close on March 01, 2021. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.55% of the post issue paid-up capital of the company. PIL is spending Rs. 0.48 cr. for this issue process.

The issue is solely lead managed by Aryaman Financial Services Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is a Market Maker for this issue.

PIL's initial equity is issued at par, the company has also issued bonus shares in the ratio of 1 share for every 1 share held in June 2020. The average cost of acquisition of shares by the promoters is Rs. 4.01 and Rs. 9.35 per share.

Post issue, PIL's current paid-up equity capital of Rs. 5.19 cr. will stand enhanced to Rs. 6.09 cr. With the IPO pricing, the company is looking for a market cap of Rs. 100.49 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, PIL has on a consolidated basis posted turnover/net profits of Rs. 179.83 cr. / Rs. 6.34 cr. (FY20). For the first half ended on September 30, 2020, it has earned a net profit of Rs. 0.83 cr. on a turnover of Rs. 68.08      cr.

On a standalone basis, for the last three fiscals, PIL has reported turnover/net profits of Rs. 106.78 cr. / Rs. 3.24 cr. (FY18), Rs. 137.98 cr. / Rs. 5.86 cr. (FY19) and Rs. 136.31 cr. / Rs.4.08 cr. (FY20). For the first half of the current fiscal ended on September 30, 2020, it has earned a net profit of Rs. 0.27 cr. on a turnover of Rs. 51.72 cr. Thus during the lockdown period, the company has suffered a severe setback in the top and bottom lines on consolidated as well as on a standalone basis.

For the last three fiscals, the company has posted an average EPS of Rs. 8.74 and an average RoNW of 20.68%. The issue is priced at a P/BV of 3.16 based on its consolidated Net Asset Value (NAV) of Rs. 52.24 and at a P/BV of 2.41 based on post issue NAV of Rs. 68.38.

If we annualize latest earnings and attribute it to fully diluted post issue equity, then asking price is at a P/E of around 60.4 (on a consolidated basis) and at a P/E of around 185+ (on a standalone basis). Thus the issue is exorbitantly priced against an industry average of 37.50 P/E. On the basis of FY20 earnings, the issue is priced at a P/E of 23.44 (on a consolidated basis) and at a P/E of 24.63 (on a standalone basis) respectively making it fully priced issue.  

COMPARISION WITH LISTED PEERS:
As per the offer documents, the company has shown Pritika Auto, Minda Corp, Sandhar Techno as its listed peers that are currently trading at a P/Es of around 57.25, 52.2 and 41.2 (as of 19.02.2021). However, they are truly not comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 25th mandate from its stable in last three fiscals (including the ongoing one). Out of last 10 listings, 2 opened at discount and the rest with a premium ranging from 0.06% to 2.16% on the day of listing. Thus the Lead Manager has average track records.

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