Rajputana Ind. NSE SME IPO review (May apply)

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Review By Dilip Davda on July 27, 2024

•    RIL is in the business of recycling various scraps in to relevant metals. 
•    It posted stead growth in its top and bottom lines for the reported periods. 
•    It is venturing in to manufacturing of cables for variety of uses.
•    Based on FY24 earnings, the issue appears fully priced. 
•    Investors may park funds for the long term. 

ABOUT COMPANY:
Rajputana Industries Ltd. (RIL) is primarily engaged in the business of manufacturing of diverse range of non-ferrous metal products from primarily Copper, Aluminium, Brass and various alloys from recycling of scrap metal. It procures scrap metal from open markets and convert them into billets made of metals like aluminium, copper or brass etc. through recycling in its in-house manufacturing unit situated at SP-3, SKS Industrial Area, Reengus Extension, Sikar, Rajasthan. 

Once these billets are manufactured from recycled scrap metal, it either sell them to different manufacturing companies or uses them to produce products like Copper rods, Aluminium rods, Copper mother tube, brass wires, super enameled copper conductor and many more products. These wires, tubes, bars, billets and rods are manufactured in various shapes and sizes as per the requirement of the customers and / or demand in the market.

Over the past couple of years, the company has outgrown itself into a distinguished large-scale organization specializing in wires, tubes, bus, bars and rods of various shapes, sizes and in various non-ferrous metals having plentiful applications. With a view to enhancing the product portfolio, the Company is entering into the business of manufacturing of cables which shall be primarily used in the construction industry, mainly residential and submersible cables for motors. The proposed cable plant shall be installed in the existing manufacturing facility of the company situated at SP-3, RIICO Industrial Area, Reengus, Sikar by utilizing the surplus area in the manufacturing facility. The Project shall be operational by the end of September 2024 with an annual production capacity of 13,000 Kw based on the plant and machinery shortlisted. As of July 10, 2024, it had 98 full time employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6285000 equity shares of Rs. 10 each to mobilize Rs. 23.88 cr. at the upper cap. It has announced a price band of Rs. 36 - Rs. 38 per share. The issue opens for subscription on July30, 2024, and will close on August 01, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.29% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 14.00 cr. for working capital, Rs. 4.50 cr. for purchase of Grid Solar Power Generating System, and the rest for general corporate purposes. 

The company has reserved 30000 shares for its eligible employees, and from the rest it has allocated 360000 shares for market maker, 300000 shares for shareholders of Shera Energy, not more than 2685000 shares for QIBs, not less than 900000 shares for HNIs, and 2010000 shares for Retail investors.

The issue is solely lead managed by Holani Consultants Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Holani group's Holani Consultants Pvt. Ltd. is also the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 38.00 - Rs. 60.00 between March 2023 and July 2024. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 10.00, and Rs. 13.07 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 15.93 cr. will stand enhanced to Rs. 22.22 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 84.42 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 244.51 cr. / Rs. 2.64 cr. (FY22), Rs. 255.25 cr. / Rs. 3.10 cr. (FY23), Rs. 327.01 cr. / Rs. 5.13 cr. (FY24). The company has posted steady growth in its top and bottom lines. 

For the last three fiscals, it has reported an average EPS of Rs. 2.74, and an average RoNW of 14.20%. The issue is priced at a P/BV of 1.79 based on its NAV of Rs. 21.25 as of March 31, 2024, but the IPO price band ad is missing data on its post-IPO NAV at lower and upper cap.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.45, and based on FY23 earnings, the P/E stands at 27.34. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.08% (FY22), 1.22% (FY23), 1.57% (FY24), and RoCE margins of 27.35%, 22.67%, 30.28% 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 Nupur Recyclers, Baheti Recycling, as their listed peers. They are trading at a P/E of 64.6 and 42.8 (as of July 26, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Holani Consultants in the last four fiscals (including the ongoing one), out of the last 9 listings, 1 opened at discount and the rest listed with premiums ranging from 4.94% to 266.20% on the date of listing.  

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