SKP Bearing NSE SME IPO review (May apply)

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Review By Dilip Davda on June 25, 2022

•    SKP is engaged in the manufacturing and marketing of bearings/rollers/pins etc.
•    It has posted super margins for the reported financial data.
•    Based on its current earnings, the issue is fully priced. 
•    Sustainability of such margins going forward is a major concern.
•    Cash surplus/well-informed/risk seekers may consider an investment. 

ABOUT COMPANY:
SKP Bearing Industries Ltd. (SKP) is the manufacturer of needle rollers, cylindrical rollers, pins and steel balls ("Rolling Elements") and one of the players in the list of finished roller manufacturers in India. Over the years it has developed expertise and upgraded technology by adding several automatic and imported machinery and equipment to the plant, which has helped boost its production capacity and the quality of products.

SKP supplies these rolling elements across India to reputed bearing manufacturers and OEMs in the domestic market in diverse industries such as textile, automobile, etc. The company has the potential to supply the best products at the most competitive prices in the market. SKP is also an exporter of rolling elements which cater for the requirements of international customers in Brazil, Argentina, UAE, etc. Over the years, it has also ventured into the power generation business by installing a windmill in the year 2012-2013 with a commissioned capacity of 0.80 MW and is currently used for captive consumption. 

It also has a solar plant situated in Madhya Pradesh (MP), and other windmills situated in Maharashtra as well as in MP. Power generated from these three units is being sold on the grid to other customers. Its current manufacturing facility unit located at Surendranagar, Gujarat, India is having a total area of approximately 16,160sq. mtrs. As of date, this facility has machinery installed for the manufacturing rollers for 600 million pcs, and manufacturing of balls for 480 tons. As of May 31, 2022, it has around 110 employees (including workers) at its plant and office.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 8.71 cr.) and general corporate purposes (Rs. 2.24 cr.), SKP is coming out with a maiden IPO having a combo of fresh equity issue as well as an offer for sale (OFS). The company is issuing 4400000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 30.80 cr. The fresh issue is for 1600000 equity shares (Rs. 11.20 cr.) and OFS of 2800000 equity shares (Rs. 19.60 cr.). The issue opens for subscription on June 30, 2022, and will close on July 05, 2022. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.51% of the post-IPO paid-up equity capital of the company. SKP is spending Rs. 0.68 cr. for this IPO process.

The issue is solely lead managed by Shreni Shares Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also the market maker for this IPO.  

The company has issued/converted entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post-IPO, SKP's current paid-up equity capital of Rs. 15 cr. (15000000 shares) will stand enhanced to Rs. 16.60 cr. (16600000 shares). Based on the IPO pricing, the company is looking for a market cap of Rs. 116.20 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SKP has posted turnover/net profits of Rs. 40.81 cr. / Rs. 9.93 cr. (FY19), Rs. 32.58 cr. / Rs. 8.12 cr. (FY20) and Rs. 37.09 cr. / Rs. 7.46 cr. (FY21). For the period ended on January 05, 2022, of FY22, it has earned a net profit of Rs. 9.40 cr. on a turnover of Rs. 34.44 cr. Margins enjoyed by the company are mind-boggling and raise eyebrows. Can it be sustained going forward is a major concern? 

For the last three fiscals, SKP has posted an average EPS of Rs. 5.39 and an average RoNW of 20.42%. The issue is priced at a P/BV of 2.54 based on its NAV of Rs. 27.54 as of January 05, 2022. 

If we annualize FY22 earnings and attribute it to the post IPO fully diluted equity capital, then the asking price is at a P/E of 9.49.  This makes the offer fully priced based on its current earnings.

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. It will adopt a prudent policy post listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SKP has shown NRB Bearings, Menon Bearings, Galaxy Bearings and SNL Bearings as its listed peers. They are currently trading at a P/E of 17.39, 16.88, 14.24 and 11.65 (as of June 24, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 listed at par and the rest with premiums ranging from 0.06% to 59.73% on the day of listings.

SKP Bearing Industries IPO FAQs