Rulka Electricals NSE SME IPO review (Apply)

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Review By Dilip Davda on May 13, 2024

•    The company is a turnkey projects contractor with a major thrust for electric/firefighting solutions. 
•    The company posted growth in its top and bottom lines, and has blue-chip clients.
•    Its thrust for larger orders with clubbing of many services brings higher margins. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for the long term rewards.

ABOUT COMPANY:
Rulka Electricals Ltd. (REL) is in business of turnkey projects contractor engaged in offering solution for all types of Electrical & Fire Fighting Turnkey Projects. The company offers wide range of services like Electrical Solutions, Electrical Panels, Solar EPC Contracts, Turn Key Electrical Warehousing Projects, Electric Commercial Industrial Services, Maintenance Services, Electrical Contracting and Data & Voice Cabling Installation across the Industrial Sector, Commercial, Retail and Theatre sector. REL offers electrical contracting services for all types of industrial plants.

The company has integrated operations which involve Designing, Supplying, Installation, Testing & Commissioning of the project. It also maintains the projects as per the Requirements. It has completed Warehouses projects across country. Also, it has completed Retail Stores projects, theatres project across country & many more Hospitals & Hospitality. As part of its on-going commitment to delivering comprehensive solutions and ensuring the longevity of the systems it installs, the company provides Operations and Maintenance (O&M) services, specifically tailored for electrical and fire-fighting systems. The O&M services are designed to proactively address the needs of Clients systems, offering a range of services including routine inspections, preventive maintenance, prompt issue resolution, and emergency response.

It also provides Annual Maintenance which are customized to meet the specific requirements of systems and operations. Under an Annual Maintenance Contacts, it provides dedicated team of technicians and engineers, ensuring that systems are consistently maintained to the highest standards. The O&M and AMC services contribute 1.21%, 2.33%, 5.64% to the total revenue for the year ended March 31, 2023, March 31, 2022 and March 31, 2021. Being in the domain for more than a decade, it understands the importance of latest facilities in the growth of any organization. Thus, it has developed the infrastructure at its premises so as to meet the growing demands of clients effectively. At premises, the company has installed all the requisite tools and equipment for fabrication, testing and installation of all types of electrical products. All these tools and equipments are upgraded on a regular basis so as to ensure timely completion of all the processes.

REL offers professional solutions, encompassing design and electrical services, to cater to the needs of valued customers. It leverages technical expertise in the most optimal and cost-effective manner, ensuring the utmost reliability and availability of each project. It derives 100% revenue from Turnkey Projects - Turnkey Project includes material and Labour both together with Engineering, Designing and Consultancy Services. As of February 29, 2024, it had 92 employees on its payroll and also hires contract labour as and when needed. 

According to the management, it has long term relationship with few blue chip clients like D'mart, Oberoi Hotels, Reliance Retail, Radisson group, Welspun One Logistics, Mastek, Indospace, Inox and many more, thus is serves B2B segment where the orders are of large magnitude that bring higher margins. The company is now focusing on mega orders to scale up its top and bottom lines in coming years. It has expanded its horizons with PA system, CCTV Servicing, Audio-Video system, IT Networking, Solar System Services, Security system and thus able to provide many services under one roof. However, all these segments are highly competitive and fragmented, thus remains as a big challenge. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 1123200 equity shares of Rs. 10 each to mobilize Rs. 26.40 cr. at the upper cap. The issue consists of 842400 fresh equity shares (worth Rs. 19.80 cr.) and 280800 shares (worth Rs. 6.60 cr.) by Offer for Sale (OFS). It has announced a price band of Rs. 223 - Rs. 235 per share. The issue opens for subscription on May 16, 2024, and will close on May 21, 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, it will utilize Rs. 14.00 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par the company issued further equity shares at a fixed price of Rs. 144 per share in June 2023. It has also issued bonus shares in the ratio of 29 for 1 in April 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.42 cr. will stand enhanced to Rs. 4.26 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 100.07 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 19.60 cr. / Rs. 0.54 cr. (FY21), Rs. 36.27 cr. / Rs. 1.12 cr. (FY22), and Rs. 46.90 cr. / Rs. 2.81 cr. (FY23). For 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 5.66 cr. on a total income of Rs. 65.28 cr. Thus it posted growth in its top and bottom lines for the reported periods. However, bumper growth for 11M of FY24 raise eyebrows and its sustainability going forward.

For the last three fiscals, it has reported an average EPS of Rs. 5.65, and an average RoNW of 44.09%. The issue is priced at a P/BV of 6.22 based on its NAV of Rs. 37.77 as of February 29, 2024, and at a P/BV of 2.46 based on its post-IPO NAV of Rs. 95.72 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.22. Thus the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 2.74% (FY21), 3.09% (FY22), 5.99% (FY23), 8.68% (11M-FY24), and RoCE margins of 24.66%, 37.82%, 36.51%, 33.67% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the last five years. 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 HEC Infra as their listed peers. It is trading at a P/E of 17.4 (as of May 13, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
As per Chittorgarh.com data, this is the 39th mandate from Beeline Capital in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 5.88% to 200% on the listing date. However, the offer document is missing total mandates (fiscal wise) table.

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