Sonu Infratech NSE SME IPO review (May apply)

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Review By Dilip Davda on April 28, 2022

•    SIL is providing civil construction and maintenance related services.
•    It has posted a sudden jump in bottom lines for the last 19 months working.
•    Based on its improved financial data, the issue is fully priced. 
•    Cash surplus/risk seeker may consider an investment with a long term perspective. 

ABOUT COMPANY:
Sonu Infratech Ltd. (SIL) is engaged in the business of civil construction services, such as piling, excavation, road preparation, land levelling, structural painting, building construction in nature of the commercial and industrial projects, mechanical scaffolding services including structuring and piping, Plant maintenance at Reliance DTA (Domestic Territory Area), Reliance SEZ (Special Economic Zone), Reliance MTF (Marine Time Farm including DTA and SEZ), Reliance J3 (C2 Complex, PCG DTA, PCG SEZ, Rubber Plant), Nayara Maintenance, Repairs and Maintenance services such as plumbing, electrification, cleaning of vessels, plant and machinery, tanks during shut down period of the company who had awarded SIL contract etc.

The company also has its own plant and machinery and vehicle which enables it to provide a complete range of civil construction services for the majority of all types of civil construction and infrastructure-related work. SIL is a class "C" contract ("Upper Tendering Limit of Rs. 100 Lakh) which enables it to bid the contract for any kind of defence segment work in India. It has successfully completed various contracts awarded by Military Engineering Services ("MES").

It had a work order book of more than Rs. 20.41 cr. as of December 20, 2021. SIL secures contracts generally through one to one negotiation. The pricing of services is determined on the basis of the type of construction and estimated duration within which it needs to be completed as well as the type of equipment required.

As of October 31, 2021, it had a total strength of 1359 Employees including contract Labours. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for incremental working capital (Rs. 6.24 cr.) and general corporate purpose (Rs. 2.00 cr.), SIL is coming out with a maiden IPO of 2400000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 8.64 cr. The issue opens for subscription on April 29, 2022, and will close on May 05, 2022. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.57% of the post issue paid-up capital of the company. SIL is spending Rs. 0.40 cr. for this IPO process. 

The issue is solely lead managed by Swastika Investmart Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. 

After having issued initial equity capital at par the company issued further equity at Rs. 30 per share in March 2018. The average cost of acquisition of shares by the promoters is Rs. 10 per share.   

Post IPO, SIL's current paid-up equity capital of Rs. 5.45 cr. will stand enhanced to Rs. 7.85 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 28.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SIL has posted turnover/net profits of Rs. 34.13 cr. / Rs. 0.64 cr. (FY19), Rs. 41.14 cr. / Rs. 0.66 cr. (FY20) and Rs. 40.77 cr. / Rs. 1.40 cr. (FY21). For the first seven months period of FY22 ended on October 31, 2021, it has earned a net profit of Rs. 1.04 cr. on a turnover of Rs. 32.40 cr. A surge in the bottom line shown for the last 19 months raises eyebrows. 

For the last three fiscals, SIL posted an average EPS of Rs. 1.88 and an average RoNW of 11.87%. The issue is priced at a P/BV of 2.12 based on its NAV of Rs. 16.95 as of March 31, 2021 (surprisingly the company has now shown its NAV as of October 31, 2021 ending.). It is priced at a P/BV of 1.53 based on its post-IPO NAV of Rs. 23.59.

If we annualize FY22 earnings and attribute it to fully diluted post IPO equity, then the asking price is at a P/E of 15.79. Thus issue appears fully priced. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SIL has shown RPP Infra and Shashijit Infra as its listed peers. They are currently trading at a P/E of 7.88 and 350 (as of April 28, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend for the reported period of the offer document. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 3rd mandate from Swastika Investmart in the last four fiscals (including the ongoing one). Out of the last two listings, one opened at par and the one at a discount. Thus it has a poor track record. 

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