Siyaram Recycling BSE SME lPO review (May apply)

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Review By Dilip Davda on December 10, 2023

•    SRIL is engaged in the business of brass products and components.
•    It has posted erratic financial performances for the reported periods.
•    The sudden boost in its bottom lines from FY23 onwards raises eyebrows. 
•    Based on FY24 super annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium term. 

ABOUT COMPANY:
Siyaram Recycling Industries Ltd. (SRIL) is primarily engaged in (i) segregation of brass scrap (ii) manufacturing of brass ingots, billets and brass rods and (iii) manufacturing of brass based components (plumbing and sanitary parts).

It manufactures various brass components (plumbing and sanitary parts) such as brass inserts, brass ceramic cartridges (brass spindles), brass valves, extension nipples etc. as per the customer's requirements, from its two manufacturing units (Unit-I and Unit-II) located at village Lakhabaval, district Jamnagar. Some of the renowned brands which are SRIL's customers include Hindware, ROCA, Eauset, Somany, Supreme, AGI Greenpac (formerly known as HSIL) and Ashirvad Pipes. 

The company also manufactures brass ingots, billets and rods through brass scrap and is mainly exported to China. Additionally, it supplies brass ingots to esteemed customers in India such as Astral Limited, Kajaria Bathware and AGI Greenpac. It procures brass scrap mainly from international market such as USA, UK, Europe and Middle East. Post procurement, segregation of brass is done and is mainly sold by in Gujarat. 

Brass is an alloy generally made from Copper and Zinc. Copper is a malleable and ductile metallic element that is an excellent conductor of heat and electricity as well as being corrosion resistant and antimicrobial. The ability to conduct electricity and heat are two of the most important properties of copper. When alloyed with other metals, it acquires additional properties including increased hardness, tensile strength and improved corrosion resistance. Brass and Bronze are two of the most important alloys of copper. Copper and brass are the materials of choice for plumbing, taps, valves and fittings for their aesthetic appeals. Owing to its corrosion resistance in varied types of environment, zinc is used for protecting steel by way of galvanizing. 

Recycling brass helps to conserve natural resources by reducing the need to mine and extract new metals. Recycling also reduces energy consumption, as it takes less energy to recycle brass than it does to produce new brass. Additionally, recycling brass helps to minimize the environmental impact of mining and processing new metals, as well as reducing waste in landfills. Brass is used in a wide range of applications which include: - Plumbing fixtures and fittings such as valves, faucets, sanitary and other plumbing components; - Electrical connectors and terminals such as electrical connectors, terminals, and switches; - Decorative objects such as sculptures, ornaments and doorknobs; and - Mechanical components such as gears, bearings, and bushings.

Currently, it markets products to around 18 states & Union Territories in India of which majority portion of the revenue comes from the state of Gujarat. The company also exports products to countries such as China, Germany, Belgium and Oman.

As of October 31, 2023, the Company has employed around 92 employees (including labour) at various levels of the Organization. It also employs manpower on contractual basis as and when needed.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 4992000 equity shares of Rs. 10 each. It has announced a price band of Rs. 43 - Rs. 46 and mulls mobilizing Rs. 22.96 cr. at the upper cap. The issue opens for subscription on December 14, 2023, and will close on December 18, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.56% of the post-IPO paid up capital of the company. From the net proceeds of the IPO funds, the company will utilize Rs. 18.00 cr. for repayment of certain borrowings and the rest for general corporate purposes.  

The issue is solely lead managed by Hem Securities Ltd. and Cameo Corporate Services Ltd. is the registrar of the IPO.  HEM Group's Hem Finlease Pvt. 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. 15 - Rs. 60 per share between December 2007 and March 2017. The average cost of acquisition of shares by the promoters is Rs. 7.71, Rs. 21.28, Rs. 37.22, and Rs. 60.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 13.81 cr. will stand enhanced to Rs. 18.80 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 86.47 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted total income/net profit of Rs. 139.73 cr. / Rs. 1.42 cr. (FY21), Rs. 426.44 cr. / Rs. 3.22 cr. (FY22), and Rs. 497.86 cr. / Rs. 7.65 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 3.97 cr. on a total income of Rs. 215.11 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 3.72 and an average RoNW of 11.68%. The issue is priced at a P/BV of 1.26 based on its NAV of Rs. 36.50 as of September 30, 2023, and at a P/BV of 1.18 based on its post-IPO NAV of Rs. 39.02 per share at the upper cap. 

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.90. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.03% (FY21), 0.76% (FY22), 1.55% (FY23), 1.85% (H1-FY24), and RoCE margins of 5.39% (FY21), 10.38% (FY22), 13.42% (FY23), 7.46% (H1-FY24) respectively for the referred periods. 
 
DIVIDEND POLICY:
The company has not declared any dividends for any reported financial 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 Sprayking Agro and Poojawestern Metaliks as their listed peers. They are trading at a P/E of 72.90, and 22.23 (as of December 08, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 35th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, all listed at premiums ranging from 10.57% to 125% on the day of listing.

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