Shivalic Power NSE SME IPO review (May apply)

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Review By Dilip Davda on June 17, 2024

•    The company is engaged in manufacturing of LT & HT electric panel.
•    It posted average growth in its top line, but boosted bottom lines from FY23 onwards surprised all. 
•    The sudden rise in its bottom lines for the last 21 months raise concern overs its sustainability going forward.
•    Based on FY24 super earnings, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for the long term rewards. 

ABOUT COMPANY:
Shivalic Power Control Ltd. (SPCL) is an ISO-certified LT and HT electric panel manufacturer with an operating history of 20 years. It is a technology-driven company with a strong focus on quality, design and product development, which has allowed it to develop products suited to customers' requirements. Its 1,25,000 Sq. Feet of in-house manufacturing unit allowed it to manufacture a diversified range of electric panels such as PCC Panels, IMCC Panels, Smart Panels, MCC Panels, DG synchronization panels, Outdoor panels, HT Panels up to 33KV, VFD Panels, Power Distribution Boards, Bus Duct and LT & HT APFC Panels. SPCL is authorized by industry leaders such as L&T, Siemens, Schneider Electric and TDK to manufacture fully type-tested panels as per IEC 61439 - 1&2, IEC 61641, IS1893 which it serves to more than 15+ industrial Sectors in India as well as in outside India, viz, Nepal, Bangladesh, African countries such as Uganda, Kenya, Nigeria, Algeria.

The company has a dedicated team of engineers who are experts in designing and developing advanced designs which enable it to manufacture the Techno Modular Design - Fully Bolted Panels with Aluminium and Copper Bus Bar, which make SPCL different from traditional welding panel manufacturers with a strong focus on the quality of the panel.

The company is buying most of the materials directly from industrial giants like L&T, Siemens, ABB, C&S, EPCOS. So far, it is serving traditional industries like FMCG, Metal, Cement, Automobile etc. From the last year, with a team of expert engineers, designers and other supporting staff, it has diversified business and started serving to data centre industry also.

Recently in Nov 23, the company bagged biggest order for LT works in the RBI Data Centre complex at Bhubaneshwar from HPE. Its capacity utilization has remained under 40% for all these years. As of December 31, 2023, it had 180 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6432000 equity shares of Rs. 10 each to mobilize Rs. 64.32 cr. at the upper cap. It has announced a price band of Rs. 95 - Rs. 100 per share. The issue opens for subscription on June 24, 2024, and will close on June 26, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.67% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 30.03 cr. for working capital, Rs. 7.64 cr. for capex on new machineries and construction of new assembly line, Rs. 5.75 cr. for inorganic growth, and the rest for general corporate purposes. 

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. SS Corporate Securities Ltd. is 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.50 to Rs. 500 per share between May 2008 and March 2024. It has also issued bonus shares in the ratio of 16 for 1 in February 2024. The average cost of acquisition of shares by the promoters is Rs. 2.28, and Rs. 3.09 per share.  

Post-IPO, company's current paid-up equity capital of Rs. 17.68 cr. will stand enhanced to Rs. 24.12 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 241.16 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 52.38 cr. / Rs. 0.67 cr. (FY21), Rs. 57.41 cr. / Rs. 1.75 cr. (FY22), and Rs. 82.69 cr. / Rs. 7.16 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 7.60 cr. on a total income of Rs. 63.79 cr. Thus a sudden boost in its bottom lines in pre-IPO years from FY23 raises eyebrows and concern over its sustainability going forward. 

For the last three fiscals, it has reported an average EPS of Rs. 2.50, and an average RoNW of 23.10%. The issue is priced at a P/BV of 5.58 based on its NAV of Rs. 17.93 as of December 31, 2023, and at a P/BV of 2.54 based on its post-IPO NAV of Rs. 39.37 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 23.81. Thus the issue is fully priced discounting all near term positives. 

For the reported periods, the company has posted PAT margins of 1.28% (FY21), 3.04% (FY22), 8.66% (FY23), 11.96% (9M-FY24), and RoCE margins of 9.84%, 9.22%, 24.64%, 19.20% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Saakshi Medtech, and Marine Electricals as their listed peers. They are trading at a P/E of 33.8 and 75.8 (as of June 14, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from Corporate Capital in the last four fiscals (including the ongoing one), out of the last 10 listings, all opened with a premiums ranging from 38.46% to 245.24% on the date of listing. 

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