Tunwal E-Motors NSE SME IPO review (May apply)

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Review By Dilip Davda on July 11, 2024

•    The company is one of the emerging company in EV-2-wheeler sector.
•    It marked growth in its top and bottom lines. 
•    It is focusing on rural markets for higher penetration, which has seen good results. 
•    Based on FY24 super earnings, the issue appears aggressively priced. 
•    Well-informed investors may park funds for the medium to long term. 

ABOUT COMPANY:
Tunwal E-Motors Ltd. (TEML) is one of the emerging companies in the EV 2-wheeler sector, committed to advancing innovation in EV 2-wheeler manufacturing. Over the years, it has achieved a 346% CAGR on revenue, introduction of more than 23 models including 7 variants of 2 wheelers, dealer base of over 225 across India and established a presence in 19 states. 

TEML, an upcoming force in the electric vehicle (EV) manufacturing sector, stands at the forefront of India's drive towards sustainable and eco-friendly mobility solutions. Established in 2018, the company has rapidly evolved to become a significant player in the market, specializing in the design, development, manufacturing, and distribution of high-quality electric two-wheelers.

With new age production facility strategically located in Palsana, Rajasthan, Tunwal E-Motors leverages efficient manufacturing/assembly processes to meet the burgeoning demand for electric scooters. The company is registered under the Bureau of Indian Standards and SAE International; USA has confirmed World Manufacturer identifier (WMI) code for it. Committed to addressing the urgent need for electric mobility solutions in India, Tunwal E-Motors focuses on delivering user friendly, technologically advanced and affordable electric scooters. The company's mission extends beyond product excellence, aiming to contribute to a cleaner and more sustainable future for the nation and also develop further electric based mobility solutions.

Tunwal E-Motors Ltd.'s comprehensive business model and commitment to excellence position it as an emerging player in India's electric vehicle landscape, poised for sustained growth and success. Company's current install capacity of 41000 units is having capacity utilization of 55.09 (FY24). As of March 31, 2024, it had 64 employees on its payroll.

According to the management, due to their focused marketing in rural areas and use of conventional power back up like Acid Batteries, they have kept the price point very competitive and affordable and inflated margins. 

However, its future success lies on scaling up of production and facing the cut-throat competitive that is likely to emerge. Its margin levels of FY24 may not sustain going forward to outperform the industry standards.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 19600000 equity shares of Rs. 2 each at a fixed price of Rs. 59 per share to mobilize Rs. 115.64 cr. The issue constitutes 13850000 fresh equity shares worth Rs. 81.72 cr. and an Offer for Sale (OFS) of 5750000 shares worth Rs. 33.92 cr. The issue opens for subscription on July 15, 2024, and will close on July 18, 2024. 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 35.44% of the post-IPO paid-up capital of the company. The company is spending Rs. 16.31 cr. for the IPO process, from the net proceeds of the fresh issue, it will utilize Rs. 35.00 cr. for working capital, Rs. 5.00 cr. for R & D, Rs. 5.00 cr. for inorganic growth, and Rs. 20.41 cr. for general corporate purposes. The company is spending overall Rs. 16.77 cr. (including Rs. 16.31 cr. for the fresh equity issue) for this IPO process. Higher spending indicates fully structured model of the IPO. 

The issue is solely lead managed by Horizon Financial Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., and Nikunj Stock Brokers Ltd., are the market makers for the company. The IPO is underwritten to the tune of 15% by Horizon Management, and up to 85% by Giriraj Stock Broking.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 50.00 - Rs. 55.60 (on the basis of Rs. 2 FV) between March 2022 and April 2023. It has also issued bonus shares in the ratio of 3 for 1 in January 2023, and 1 for 1 in February 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. - 1.05, Rs. 8.15, and Rs. 25.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.29 cr. will stand enhanced to Rs. 11.06 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 326.28 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 75.66 cr. / Rs. 2.34 cr. (FY22), Rs. 76.56 cr. / Rs. 3.73 cr. (FY23), and Rs. 105.54 cr. / Rs. 11.81 cr. (FY24). The sudden boost in its bottom line for FY24 is far more compared to industry average and may not sustain going forward.

For the last three fiscals, it has reported an average EPS of Rs. 2.23, and an average RoNW of 53.06%. The issue is priced at a P/BV of 11.92 based on its NAV of Rs. 4.95 as of March 31, 2024, and at a P/BV of 15.90 based on its post-IPO NAV of Rs. 3.71 per share. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 27.57, and on FY23 earnings basis, it stands at 86.77. Thus this IPO appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 3.10% (FY22), 4.87% (FY23), 11.29% (FY24), and RoCE margins of 27.13%, 31.97%, 59.38% respectively for the referred periods. Its peers have a PAT margins just under 4.6% and RoCE margins below 18%. 

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 Wardwizard Innovations, and TVS Motors, as their listed peers. They are trading at a P/E of 106 and 69.6 (as of July 11, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Horizon Management in the last two fiscals (including the ongoing one), out of the last 5 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 14.54% to 141.23% on the date of listing. 

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