Vilas Transcore NSE SME IPO review (May apply)

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Review By Dilip Davda on May 21, 2024

•    The company is engaged in the manufacturing and marketing of components used in the power distribution and transmission sector.
•    The company marked growth in its top and bottom lines for the reported periods. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium to long term.
 
ABOUT COMPANY:
Vilas Transcore Ltd. (VTL) is engaged in the manufacturing and supply of components used in the power distribution and transmission sector, primarily to transformer and other power equipments manufacturer in India and abroad. It manufactures and supplies a different range of electrical lamination cold rolled grain oriented (C.R.G.O.) lamination core, CRGO slit coils, CRGO stacked (assembled cores), CRGO wound core and CRGO Toroidal core which are mainly used in power transformer, distribution transformer & dry type transformers, high voltage / medium voltage & low voltage current transformers. 

The company manufactures products keeping in mind the industry standards and specifications given by the customer, with the use of latest technology to manufacture its products and offer customers with the defined requirements based on the product dimensions and materials for application in the power & distribution equipment industry.

VTL is majorly catering to the power distribution and power engineering industry. Its products, CRGO laminated Core, CRGO core and slit coils are one of the most important parts of different kinds of power transformer, distribution transformer & other current transformers. The core of a transformer is a very important part for the proper functioning of the transformer. The core of the transformer are made through laminated sheets which are used to minimize current losses and CRGO steel material is used to minimize hysteresis losses, it provides a low reluctance path for electromagnetic flux and supports the primary and secondary windings of transformer. 

The core is laminated to reduce these currents to a minimum as they interfere with the efficient transfer of energy from the primary coil to secondary coil. Considering the importance of core, many points are kept in mind while the designing and manufacturing of the laminations, like manufacturing, functional reliability, longer service life, economy etc. The use of proper material & optimization of the shape are also very important for the efficiency of the transformer. It has over the years, established long standing relationships with several well-known Indian and global transformer manufacturers.

As of December 31, 2023, the Company has employed approximately 268 employees at various levels of the Organization. It also employs manpower on contractual basis as per manufacturing requirements.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6480000 equity shares of Rs. 10 each to mobilize Rs. 95.26 cr. at the upper cap. It has announced a price band of Rs. 139 - Rs. 147 per share. The issue opens for subscription on May 27, 2024, and will close on May 29, 2024. The minimum application to be made is for 1000 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. 5.00 cr. for strategic investment and acquisitions, Rs. 20.10 cr. for capex on new factory building construction, Rs. 45.21 cr. for capex on acquisition and installation of additional plant and machinery, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. Share Transfer Agent to the company is Accurate Securities and Registry Pvt. Ltd. 

Having issued initial equity capital at par the company issued further equity shares at a fixed price of Rs. 110 per share in April 2007. It has also issued bonus shares in the ratio of 5 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 0.81 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.00 cr. will stand enhanced to Rs. 24.48 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 359.86 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 134.85 cr. / Rs. 5.23 cr. (FY21), Rs. 235.18 cr. / Rs. 17.92 cr. (FY22), and Rs. 284.78 cr. / Rs. 20.22 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 16.80 cr. on a total income of Rs. 238.30 cr. Thus the company has posted steady growth in its top line with average growth in bottom lines for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 9.42, and an average RoNW of 15.41%. The issue is priced at a P/BV of 1.93 based on its NAV of Rs. 76.25 as of December 31, 2023, and at a P/BV of 1.55 based on its post-IPO NAV of Rs. 94.98 per share (at the upper cap).

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 16.07. Thus the IPO appears fully priced. 

For the reported periods, the company has posted PAT margins of 3.95% (FY21), 7.69% (FY22), 7.16% (FY23), 7.12% (9M-FY24), and RoCE margins of 9.22%, 24.74%, 22.64%, 16.10% 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 no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 44th mandate from Hem Securities in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 4.63% to 165.22% on the date of listing.

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