Trackrecord justifies price though spurt in margin on IPO eve without positive cash generation makes profit suspect.
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OFFER AT A GLANCE |
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Issuer Name |
Perfect Infraengineers Ltd |
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Offer Amount |
Rs 5.77 cr |
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Offer Quantity |
25.08 lakh shares of Rs 10 each |
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Offer on Total Equity |
32.5% |
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Post-issue Promo stake |
65.3% |
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Post-IPO Capital |
Rs 7.71 cr |
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Offer Price |
Rs 23 |
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Application Quantity |
6,000 & Multiples of 6,000 |
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Offer Opens |
October 30, 2015 |
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Offer Closes |
November 4, 2015 |
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Listing |
SME Platform of NSE |
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IPO Grading |
CRISIL – 4/5 |
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Lead Manager |
Keynote Corporate / SIDBI |
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Market Maker |
Keynote Capitals |
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Underwriters |
Keynote Corp-71%, SIDBI-15%, IOB-13% |
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Registrar |
Karvy Computershare |
The Issue
Fresh Issue of 25.08 lakh equity shares of Rs.10 each at a fixed price of Rs 23 a piece aggregating to Rs 5.77 cr. Whereas the lead managers Keynote Corporate Services and Small Industries Development Bank (SIDBI) have underwritten 71% (Rs 412 lakh) and 16% (Rs 90 lakh) respectively, Chennai-based Indian Overseas Bank (IOB) has committed 13% (Rs 75 lakh). The quantum of IPO amounts to 32.5% of the post-issue equity capital (Rs 7.71 cr).
Issue Object
The main objects of the IPO are to part-finance long term working capital requirement (Rs 403 lakh) and to invest in subsidiary (Rs 100 lakh) besides enhancing the company’s visibility in the industry through listing.
Background
The Mumbai-based Perfect Infraengineers Ltd (PIL) is controlled by the Mehta couple Nimesh and Manisha who had been associated with the air-conditioning industry before venturing on their own. In fact, the Mehtas have a perfect combination of academic qualifications to run their business. Nimesh Mehta (50) is a B.E. (Mechanical) cum MBA (Marketing) and Manisha Mehta is a Chartered Accountant.
As regards PIL’s history, the company was incorporated in 1996 in the name and style of Perfect Aircon Engineering Pvt Ltd in order to take over the AC service and AC renting business of Perfect Engineering, a proprietary firm which was started in the year 1992 by Nimesh Mehta. Initially, PIL was engaged in the business of air conditioner repairing, sales & services. Subsequently (in 2001) it diversified into renting of air conditioners and providing all inclusive maintenance services on yearly contracts to corporate clients. During 2006-07 PIL started providing turnkey jobs of Heating Ventilation and Air Conditioning (HVAC). The company adapted the new VRF (Variable Refrigerant Flow) technology and successfully implemented projects at ITC Fortune Hotel (Lavasa) and Residential complexes at Common Wealth games (Delhi) using the VRF technology.
After gaining experience in HVAC projects, PIL ventured into Mechanical, Electrical and Plumbing (MEP) business in 2011. As part of its expansion strategy, in 2014 PIL purchased an existing factory of 800 sq mtrs (at Rabale, Navi Mumbai) from where the company is presently carrying out the activities of assembling control panels and customizing of GI ducts. PIL currently services to various infrastructure developers, educational institutions, real estate developers, retail malls, hotels, industrial complexes, etc. Its clientele includes ME Cure Healthcare (Nigeria), Jangid Plaza (Tanzania), Lavasa Corporation (Maharashtra), Fortune Hotel (ITC Group), Rotork Control (India), Mantralaya Govt. of Maharashtra, Power Grid Corporation, Mumbai Metro One Rail, Tata Memorial Hospital (Navi Mumbai) , Bramha Crop (Le Merdian Hotel), Warasgaon Lake view Hotels and La-Lagune (Suncity) Gurgaon, Hyatt Hotels at Raipur and Hampi (Chartered Hotels), etc.
The company is also an authorized dealer and service provider for Daikin Airconditioning India, Samsung India Electronics, LG Electronics India and Mitsubushi Electric India. It now proposes to expand in a big way fabrication of electric control panel at the Rabale facility through a subsidiary, Perfect Control Panel Pvt. Ltd, which was formed recently. This will enable PIL to have an in-house assembly line of electrical panels, both high and low tension.
Business Profile
PIL’s business is broadly divided into three verticals: HVAC/MEP turnkey projects, Renting out Air Conditioning systems and Annual Maintenance Contracts (AMC). HVAC/MEP vertical covers the supply, testing and commissioning of heating, ventilation and air-conditioning services, district cooling system, precision control cooling AC system, plumbing and drainage system, fire sprinkler and hose rod system, IT data centre, UPS and building management system.
The company provides air-conditioners on rent to corporate customers normally under 3-year-contract. With increase in construction activity in major cities, more and more retail space is given on rent rather than outright buying. PIL claims to have established customer base that has rented air conditioners of around 1225 tons. The company reportedly has over 600 ACs which have been let out. PIL has full-fledged in house team to maintain and service these systems to increase efficiency and life.
PIL’s AMC division undertakes air conditioner servicing and other maintenance. The AMC comprises of preventive maintenance and attending complaints. A constant flow of customers for AMC is ensured from the project division after the warranty period. The company also provides gas and spares under the contract.
Financial Track
Being a SME, PIL had limitations to compete with big players in the industry. In 18 years, the company reached a turnover of Rs 21 cr and had a flat operating profit of around Rs 2.2 cr for four consecutive fiscals up to 2014. However, on the eve of IPO in fiscal 2015, the company’s top line grew by an impressive 23% to Rs 26 cr and EBIDTA surged more than 87% to Rs 4.12 cr, thanks to a whopping `other income’ on account of sale of property (Rs 41 lakh) and write-back of past provisions (Rs 32 lakh). While there was a surge in revenue and profit, the company’s operating cash flow turned negative in fiscal 2015 exposing the quality of profits.
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PERFECT INFRAENGINEERS’ FINANCIAL PERFORMANCE |
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(Rs.lakh) |
FY15 |
FY14 |
FY13 |
FY12 |
FY11 |
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Operating Revenue |
2552 |
2080 |
1974 |
1541 |
1517 |
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Other Income |
80 |
21 |
6 |
23 |
22 |
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Gross Income |
2632 |
2101 |
1980 |
1564 |
1539 |
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Operating Profit |
412 |
220 |
231 |
216 |
200 |
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Oper. Margin % |
13.0 |
9.6 |
11.4 |
12.5 |
11.7 |
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Finance Cost |
139 |
123 |
83 |
78 |
65 |
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Depreciation |
70 |
34 |
26 |
29 |
29 |
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Pre-tax Profit |
203 |
63 |
122 |
109 |
106 |
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Net Profit |
161 |
33 |
79 |
72 |
68 |
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Net Oper. Cash Flow |
-30 |
41 |
77 |
0 |
125 |
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Equity Capital |
511 |
383 |
360 |
214 |
204 |
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Reserves |
141 |
128 |
69 |
143 |
76 |
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Borrowings |
945 |
669 |
542 |
467 |
351 |
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Net Block |
642 |
355 |
318 |
189 |
198 |
Valuation
Even though PIL cannot be compared with the industry peers in the listed domain because of its tiny scale, for a company of 19-year-standing the IPO price looks reasonable. The company claims to have already secured orders worth more than Rs 52 cr (double of last year’s revenue). This coupled with the elite clients list that it has served in the past should ensure reasonable growth in the coming years. Moreover, the management is confident of improving its margin considerably when the new subsidiary’s control panel operations get into full swing. Higher margin on larger turnover should facilitate the management to step up the dividend from the present 2% to a respectable level. After all, a hike in dividend would help the promoters more as they hold more than 65% of the post-IPO capital.
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AIRCONDITIONING/ALLIED INDUSTRY DISCIUNTING |
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AC ALLIED |
M-CAP |
EQ |
REV |
NP |
P/E |
OPM |
YLD |
PRICE |
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(Rs Cr) |
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(%) |
(Rs) |
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Voltas |
9,675 |
33 |
5,125 |
350 |
27.6 |
6.3 |
0.8 |
293 |
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Blue Star |
3,364 |
18 |
3,246 |
161 |
20.9 |
4.9 |
1.3 |
374 |
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Perfect Infra |
18 |
7.7 |
26 |
1.6 |
11.0 |
13.0 |
0.9 |
23 |
Lead Manager’s Track
The IPO of PIL is lead-managed by two investment bankers. Whereas PIL will be the maiden IPO-management experience for SIDBI, it is the fourth SME-IPO for Keynote Corporate Services. Incidentally, all the SME-IPOs handled by Keynote are on NSE. As regards the performance of the SME-IPOs managed by Keynote, all the three listed are currently quoting well above their offer prices though their liquidity is poor. After migrating to NSE’s main frame and listing on the BSE, Veto Switchgears’ liquidity has vastly improved. But, the other two (Mitcon Consultancy and Sanco Industries) are infrequently traded.
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PERFORMANCE OF KEYNOTE-MANAGED SME IPOs |
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CO NAME |
IPO |
IPO |
LIST |
TRADE |
LIQUID |
CURNT |
GAIN |
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DATE |
PRICE |
DAYS |
DAYS |
% |
PRICE |
% |
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Veto Switch |
3-Dec-12 |
45 |
708 |
386 |
55 |
89.20 |
96 |
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Mitcon Consult |
15-Oct-13 |
61 |
487 |
164 |
34 |
74.95 |
23 |
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Sanco Indust |
24-Feb-14 |
18 |
397 |
137 |
35 |
43.00 |
139 |