Ratnaveer Precision IPO review (Apply)

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Review By Dilip Davda on August 30, 2023

•    RPEL has created a niche place in SS cold-rolled products that are widely used globally. 
•    The company has posted steady growth in its top and bottom lines for the reported periods.
•    Higher margins for FY23 attributed to cost-efficient operations with a proper product mix and adding a high-margin product portfolio.
•    Based on FY23 performance, the issue appears fully priced. 
•    Investors may consider parking funds for the medium to long term. 

ABOUT COMPANY:
Ratnaveer Precision Engineering Ltd. (RPEL) (formerly known as Ratnaveer Metals Ltd.) is a stainless steel ("SS") product manufacturer focused on producing finished sheets, washers, solar roofing hooks, pipes and tubes. Stainless steel is a value-added product with high corrosion-resistant properties. Higher levels of chromium and additions of other alloy elements enhance the corrosion resistance. 

Compared to traditional steel, stainless steel has a higher resistance to corrosion, superior aesthetic finish and higher life span. These features have helped in increasing the popularity of stainless steel across the world. Globally, cold rolled flat products are the largest produced stainless-steel product in the world, followed by hot rolled coils, and steel wire rods & bars. According to the International Stainless-Steel Forum, cold-rolled flat products account for approximately 47% of the total stainless-steel trade in the world. 

Hot coils, Semisflat, Semis Long, Hot Bar/Wire rod, Cold Bar/Wire, Hot Plate and sheet are other SS intermediary products traded globally. (Source: D&B Report). RPEL operates four manufacturing units, out of which two (Unit-I and Unit-II) are located at GIDC, Savli, Vadodara, Gujarat, one (Unit-III) is located at Waghodia, Vadodara, Gujarat and the other one (Unit-IV) is located at GIDC, Vatva, Ahmedabad, Gujarat. 

Its manufacturing units are strategically located with the availability of transportation, which facilitates convenient transportation of products. The company manufactures SS finishing sheets, SS washers and SS solar mounting hooks at Unit I and SS pipes & tubes at Unit II. Unit III and Unit IV are dedicated to the backward integration process. Unit III is the melting unit where it melts steel scrap and turns it into steel ingots and Unit IV is the rolling unit where flat ingots are further processed to turn them into SS sheets which are the raw material for SS washers.

It intends to expand the portfolio of SS washers by adding circlips into the product line. The company currently offer over 2500 SKUs of SS washers to customers including inner ring washers, spring washers, nord lock washers, retaining rings, and internal tooth washers and external tooth washers of different sizes and specifications.

RPEL's export turnover improved from 15.37% (FY21) to 19.21% (FY23). Its debt-to-equity ratio declined from 2.67 (FY21) to 2.17 (FY23). As of June 30, 2023, it had 151 employees on its payroll. It also has a contract for third-party manpower for additional workforce as and when needed. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of 13800000 (Rs. 135.24 cr. at the upper cap) fresh equity shares and an offer for sale (OFS) of 3040000 shares (Rs. 29.79 cr. at the upper cap). It has announced a price band of Rs. 93 - Rs. 98 for equity shares of Rs. 10 each and mulls mobilizing Rs. 165.03 cr. at the upper cap (for an overall 16840000 shares). The issue opens for subscription on September 04, 2023, and will close on September 06, 2023. The minimum application is to be made for 150 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 34.72% of the post-IPO paid-up capital of the company. The company has allocated not more than 50% for QIBs, not less than 15% for HNIs, and not less than 35% for Retail investors. 

From the net proceeds of the fresh equity issue, the company will utilize Rs. 85.00 cr. for working capital, and the rest for general corporate purposes. Unistone Capital Pvt. Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. 

After issuing initial equity shares at par value, the company issued further equity shares in the price range of Rs. 110.00 - Rs. 575.00 between February 2010 and January 2023. It has also issued bonus shares in the ratio of 7 for 1 in January 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL per share. 

Post-IPO, RPEL's current paid-up equity capital of Rs. 34.70 cr. will stand enhanced to Rs. 48.50 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 475.29 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RPEL has posted a turnover/net profit of Rs. 364.05 cr. / Rs. 5.46 cr. (FY21), Rs. 428.47 cr. / Rs. 9.48 cr. (FY22), and Rs. 481.15 cr. / Rs. 25.04 cr. (FY23). 

For the last three fiscals, RPEL has reported an average EPS of Rs. 4.81 and an average RoNW of 18.20%. The issue is priced at a P/BV of 3.19 based on its NAV of Rs. 30.74 as of March 31, 2023, and at a P/BV of 1.96 based on its post-IPO NAV of Rs. 49.92 per share (at the upper cap). 

If we attribute FY23 super earnings to the post-IPO paid-up capital of the company, then the asking price is at a P/E of 18.99. 

The company has posted improved net profit margins at 1.52% (FY21), 2.22% (FY22), and 5.22% (FY23). Similarly, its RoE margins have surged at 10.15% (FY21), 15.46% (FY22), and 29.12% (FY23). 

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 documents, RPEL has shown MM Forgings, Menon Bearings, and Venus Pipes as their listed peers. They are currently trading at a P/E of 17.45, 26.83, and 59.02 (as of August 30, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from Unistone Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest with premiums ranging from 10% to 270.40% on the date of listing.

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