Rappid Valves NSE SME IPO review (May apply)

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Review By Dilip Davda on September 19, 2024

•    The company is primarily engaged in the manufacturing of valve solutions.
•    Its products are sold under the brand name of "Rapid" and "Rappid Valves".
•    It is operating in a highly competitive and fragmented segment.
•    Based on FY24 earnings, the issue appears fully priced.
•    Well-informed Investors may park moderate fund for long term. 

ABOUT COMPANY:
Rappid Valves (India) Ltd. (RVIL) as claimed by the company, it recognized by its brand name "Rapid" also known as "Rappid Valves", being an Engineering Company, is primarily engaged in the manufacturing of Valve solutions. Its extensive product portfolio encompasses a vast range of valves which includes Ball valves, Gate Valves, Globe Valves, Butterfly Valves, Check Valves, Double Block valves, Strainer Valves and Marine Valves which are manufactured using ferrous and non-ferrous materials, sizes ranging from 15mm to 600mm catering to diverse requirement. 

The Company has introduced various products which included Top Entry Ball Valve, Gate Valve Trunnion Mounted Ball Valves, SDNR, Quick Closing Valve, Automated Valves, Wafer Type Ball Valves & many more which are a sub-type of Ball valves, Gate Valves, Globe Valves, Butterfly Valves, Check Valves, Double Block valves, Strainer Valves and Marine Valves. As of June 30, 2024, it had 47 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1369800 equity shares of Rs. 10 each to mobilize Rs. 30.41 cr. (at the upper cap). It has announced a price band of Rs. 210 - Rs. 222 per share. The issue opens for subscription on September 23, 2024, and will close on September 25, 2024. The minimum application to be made is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.38% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 6.73 cr. for capex on new plant and machinery, Rs. 0.39 cr. for renovation of regd. office and existing manufacturing unit, Rs. 10.50 cr. for repayment/prepayment of certain borrowings, Rs. 4.00 cr. for inorganic growth initiatives, and the rest for general corporate purposes.

The issue is solely lead managed by Shreni Shares Ltd.., Link Intime India Pvt. Ltd. Is the registrar to the issue, while Rikhav Securities Ltd. Is the market maker for the company. 

Having issued initial equity shares at par so far, the company converted further equity shares at a fixed price of Rs. 164.80 per share in July 2024. The average cost of acquisition of shares by the promoters is Rs. 0.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.82 cr. will stand enhanced to Rs. 5.19 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 115.24 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 12.15 cr. / Rs. 0.29 cr. (FY22), Rs.  16.43 cr. / Rs. 0.46 cr.  (FY23), Rs. 36.60 cr. / Rs. 4.13 cr. (FY24). The quantum jump in financial performance for the pre-IPO year i.e. FY24 raises the eyebrows and concern over sustainability of the margins. 

For the last three fiscals, it has reported an average EPS of Rs. 1.20 and an average RoNW of 2.17%. The issue is priced at a P/BV of 6.39 based on its NAV of Rs. 34.72 as of March 31, 2024, and at a P/BV of 2.94 based on its post-IPO NAV of Rs. 75.63 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 27.89. Based on FY23 earnings, the P/E stands at 252.27. Thus the issue relatively appears aggressively priced. Super performance in a pre-IPO year raises eyebrows and concern over its sustainability, as the company is operating in a highly competitive and fragmented segment. 

The company reported PAT margins of 2.39% (FY22), 2.78% (FY23), 11.32% (FY24), and RoE margins of - (82.09) %, 31.69%, 53.88% 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. (It paid a dividend of Rs. 0.030 lakh on optionally convertible preference shares in the last one year).

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Atam Valves, Chemtech Ind., and Hawa Engg., as their listed peers. They are trading at a P/E of 29.8, 82.8, and 29.0 (as of September 19, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 34th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with a premium of 4.88% to 141.94% on the date of listing.

Rappid Valves (India) IPO FAQs