Sunlite Recycling NSE SME IPO review (May apply)

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Review By Dilip Davda on August 8, 2024

•    The company is engaged in the manufacturing of copper products from copper scrap.
•    It marked growth in its top and bottom lines for the reported periods. 
•    The company operates in a highly competitive and fragmented segment.
•    Based on FY24 earnings, the issue relatively appears fully priced.
•    Investors may park funds for the long term investment.

ABOUT COMPANY:
Sunlite Recycling Industries Ltd. (SRIL) is engaged in the business of manufacturing of copper rods & wires, copper earthing wires, copper earthing strips, copper conductors, copper wire bars etc. through recycling of copper scrap, which has electrical and mechanical properties suitable for applications in power generation, transmission, distribution and electronic industries. Further, it is also engaged in providing job work services for processing of various products of copper, wherein customers provide it with the copper scrap and the company is converting the copper scrap into copper wire and copper wire rod as per customer's requirement. It employs an internal quality control mechanism to ensure that finished product conforms to the exact requirement of customers.

As of the date of this Red Herring Prospectus, it had a total of 20 machines to manufacture wide range of copper products. Its product Portfolio offers a diversified product range which includes variety of grades, thickness, widths and standards, in all types of copper products according to customer specifications. SRIL prioritizes environmental and safety considerations in copper production process. Its approach involves recycling copper scrap utilizing electricity sourced from solar generation and clean natural gas, thus mitigating the pollution associated with conventional oil-based energy sources. Copper is one of the most recycled metals of all the metals. The recycling of copper scrap is gaining importance worldwide simply because of the fact that recovery of copper metal from scrap requires much less energy than its recovery made from primary source. Besides, it enables conservation of natural resources. (Source: Indian Bureau of Mines). As of March 31, 2024, it had 38 employees on its payroll. It also employs contract labourers as and when required. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2880000 equity shares of Rs. 10 each to mobilize Rs. 30.24 cr. at the upper cap. It has announced a price band of Rs. 100 - Rs. 105 per share. The issue opens for subscription on August 12, 2024, and will close on August 14, 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 26.47% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 15.80 cr. for repayment/prepayment of certain borrowings, Rs. 4.05 cr. for capex on new plant and machinery, 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 to the issue. HEM groups 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 at a price of Rs. 11.79 in February 2024.  It has also issued bonus shares in the ratio of 7 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 6.52 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.00 cr. will stand enhanced to Rs. 10.88 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 114.24 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 937.92 cr. / Rs. 4.26 cr. (FY22), Rs. 1150.40 cr. / Rs. 5.60 cr. (FY23), Rs. 1166.55 cr. / Rs. 8.90 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 16.12, and an average RoNW of 79.92%. The issue is priced at a P/BV of 2.41 based on its NAV of Rs. 43.55 as of March 31, 2024, and at a P/BV of 2.27 based on its post-IPO NAV of Rs. 46.21 per share (at the upper cap). 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 12.84. Thus the issue appears fully priced based on super FY24 performance. 

For the reported periods, the company has posted PAT margins of 0.45% (FY22), 0.49% (FY23), 0.76% (FY24), and RoCE margins of 22.85%, 24.05%, 29.49% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Rajnandini Metal, Bhagyanagar India as their listed peers. They are trading at a P/E of 23.4 and 33.9 (as of August 08, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 49th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 16.35% to 165.22% on the date of listing. 

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