Engaging closely-held company in same line of business, boosting performance through subsidiary on the eve of public issue and selling off subsidiary’s stake thereafter make it low grade for investment.
|
OFFER AT A GLANCE |
|
|
Name |
SM Auto Stamping Ltd |
|
Offer Amount |
Rs 6.91cr |
|
Offer Quantity |
38.4 lakh shares of Rs 10 each |
|
Offer on Total Equity |
26.9% |
|
Post-issue Promoter stake |
73.1% |
|
Post-IPO Capital |
Rs 14.29 cr |
|
Offer Price |
Rs 18 |
|
Minimum Application Qty |
8000 |
|
Offer Opens |
March 3, 2020 |
|
Offer Closes |
March 5, 2020 |
|
Listing |
SME Platform of BSE |
|
Rating |
Nil |
|
Lead Manager |
Hem Securities, Mumbai |
|
Market Maker |
Hem Securities, Jaipur |
|
Underwriter |
Hem Securities, Mumbai (100%) |
|
Registrar |
Bigshare Services |
The Offer
The present offer is a fresh public issue of 38,40,000 equity Shares of face value of Rs. 10 each at a price of Rs 18 aggregating to Rs 6.91 cr. Of this, 2,00,000 shares (Rs 36 lakh) have been reserved for the market maker. The offer will constitute 26.88% of the post- issue paid-up equity share capital (Rs 14.29 cr) of the company.
This fixed price offer is proposed to be listed on the SME platform of BSE. Investors should apply for a minimum quantity of 8000 shares (Rs 1,44,000). The issue manager, Hem Securities, who has underwritten the entire issue amount, is also acting as Market Maker to the issue.
Issue Object
Of the issue proceeds, more than 72% (Rs 5 cr) is earmarked for Working Capital. About Rs 90 lakh is kept for General Corporate Purpose and Issue Expenses account for Rs 101 lakh (14.67%). Interestingly, as much as Rs 97 lakh (96%) of the issue expenses are going to be spent on the discretion of the market intermediary, who is acting as Issue Manager, Underwriter and Market Maker.
Business & Background
The 13 years-old auto component manufacturer, SM Auto Stamping Ltd, is located in Nashik catering to the sheet metal components and sub-assembly requirements of automobile parts/equipment manufacturers. The company’s range of product primarily covers sheet metal pressed components for clutches, brakes, engine mountings, chassis, shaft drive, body trims, bearings etc. which are used in passenger cars, commercial vehicles and tractors. Some of its products, such as deep drawn components and control panel components, also find application in electrical equipment industry.
Promoted by Mukund Narayan Kulkarni, Suresh Gunwant Fegde and Alka Mukund Kulkarni SM Auto was incorporated in 2006. The Company took over the running businesses of M/s. S.M Industries and M/s. Spam Fab Technocrats – partnership firms owned by the promoters in April 2007. Same year, it acquired its factory unit at MIDC, Nashik. The company achieved a consolidated turnover of Rs. 50 cr in FY17.
The company acquired 55% stake in SM Autovision Private Ltd in 2017 through allotment of equity shares and made it as a subsidiary company. A year later another 20.45% was acquired, thereby enhancing the stake in the subsidiary to 75.46%. The company posted a consolidated turnover of Rs 75 cr in FY19. Strangely, it sold 27.46% stake in the subsidiary in November 2019, post which, its stake was reduced to 48% and it ceased to be a subsidiary company.
Financial Performance
As regards SM Auto’s financial track record, the company has posted impressive top line in last three years. From Rs 50 cr in FY17, the company’s consolidated revenue has steadily increased to Rs 75 cr in FY19. However, the company’s operating profit has been far from impressive. Despite having a turnover of Rs 50 cr plus and other income (subsidy) of Rs 242 lakh in 2017 it ended at a net loss Rs 173 lakh. In 2018, with the help of Rs 64 lakh as profit on sale of assets and Rs 179 lakh as incentive, it netted a profit of Rs 84 lakh. Next year, with an incentive of Rs 86 lakh and subsidiary’s profit of Rs 105 lakh it could post a record profit of Rs 265 lakh. Without the subsidiary’s contribution, will it achieve the same profit in the current year is worth watching.
|
(Rs in Lakh) |
Sep-19 |
Mar-19 |
Mar-18 |
Mar-17 |
|
MONTHS |
6 |
12 |
12 |
12 |
|
REVENUE |
3154.28 |
7530.53 |
6335.07 |
5083.48 |
|
OTHER INCOME |
67.39 |
99.56 |
254.67 |
252.82 |
|
INTEREST |
122.04 |
221.45 |
268.98 |
340.64 |
|
DEPRECIATION |
110.91 |
228.58 |
230.82 |
253.20 |
|
NET PROFIT |
4.70 |
265.40 |
84.00 |
-173.11 |
|
EQUITY |
1044.78 |
130.60 |
130.60 |
130.60 |
|
RESERVES |
80.53 |
990.02 |
724.62 |
640.62 |
Valuation
As compared to the industry segment peers, SM Auto’s pricing (at a P/E multiple of 7x) looks reasonable. For a thirteen year-old company which has posted a positive cash flow from operations, a premium of Rs 8 for a Rs 10 paid-up share may be well justified. Nevertheless, the subsidiary which added Rs 18 cr to last year’s turnover and Rs 1 cr to the bottom line has ceased to be a subsidiary this year. This coupled with the slowdown currently witnessed by the automobile industry is expected to put SM Auto’s financials under tremendous pressure in the near future.
|
(Rs in Cr) |
Jay Bharat |
JBM Auto |
Auto Stamp |
Rasandik Engg |
SM Auto |
|
Revenue |
1738.87 |
1281.86 |
432.87 |
254.76 |
76.30 |
|
OPM |
8.5 |
11.9 |
-1.5 |
4.1 |
8.0 |
|
EBIDTA |
149.97 |
164.80 |
-4.02 |
16.09 |
7.04 |
|
INTEREST |
38.84 |
37.23 |
17.65 |
11.48 |
2.21 |
|
DEP |
65.04 |
43.86 |
10.90 |
13.57 |
2.29 |
|
NP |
28.88 |
48.41 |
-32.58 |
-2.41 |
2.65 |
|
EQ |
10.83 |
23.65 |
15.86 |
5.98 |
10.45 |
|
RES |
393.11 |
476.93 |
-43.07 |
101.24 |
0.81 |
|
BV |
186.91 |
105.82 |
-17.15 |
179.45 |
10.77 |
|
EPS |
13.36 |
10.23 |
-20.54 |
-4.03 |
2.54 |
|
DIV |
50 |
45 |
0 |
0 |
0 |
|
P/E |
15.1 |
19.4 |
-0.9 |
-11.9 |
7.10 |
|
PRO. STAKE |
59.4 |
62.0 |
75.0 |
46.2 |
73.1 |
|
CMP |
202.3 |
198.6 |
18.35 |
48 |
18 |
Perception & Concern
Group company, SM Autovision, which ceased to be a subsidiary in November 2019, is also engaged in similar line of business. In the absence of any non-compete agreement between the public company and the privately held entity, conflict of interests may arise on account of common suppliers/customers and allocating business opportunities. Any such present and future conflicts would have an adverse effect on the public company’s business and profitability.
Further, the sheet metal auto-components business is heavily dependent on the performance of the Automobile Sector particularly, passenger vehicles, commercial vehicles and tractors market in India. The current slowdown in the Auto Sector is thus likely to have an impact on the company’s operations in the near term.
HEM-SME Track
A common complaint from the retail investors about the SME platform is poor liquidity of the stocks. How much liquid are the SME IPOs managed by Hem Securities? This merchant banker handled as many as 46 IPOs in last five years of which 29 were traded less than 50% of the working days. Just 4 IPOs were traded more than 75% of the working days.
|
ISSUER NAME |
LIST DATE |
WORK |
TRADING |
LIQUID |
|
OP Chains |
22-Apr-15 |
1205 |
118 |
9.8 |
|
Junction Fabric |
13-Jul-15 |
1148 |
336 |
29.3 |
|
Loyal Equip |
16-Jul-15 |
1145 |
640 |
55.9 |
|
Emkay Tap Cut |
13-Aug-15 |
1125 |
306 |
27.2 |
|
Univers Auto |
4-Sep-15 |
1109 |
384 |
34.6 |
|
Vishal Bear |
15-Oct-15 |
1083 |
340 |
31.4 |
|
Bella Casa |
15-Oct-15 |
1083 |
676 |
62.4 |
|
Arambhan Hosp |
19-Oct-15 |
1081 |
386 |
35.7 |
|
Ragh Prod Enhan |
13-Apr-16 |
962 |
390 |
40.5 |
|
Adv Syntex |
12-Jul-16 |
902 |
413 |
45.8 |
|
Madhya Bha Agro |
12-Sep-16 |
860 |
533 |
62 |
|
Art Nirman |
19-Oct-16 |
836 |
88 |
10.5 |
|
Aurangabad Dist |
17-Oct-16 |
838 |
384 |
45.8 |
|
Dhanuka Real |
18-Oct-16 |
837 |
143 |
17.1 |
|
Globe International |
19-Oct-16 |
836 |
193 |
23.1 |
|
Pansari Dev |
18-Oct-16 |
837 |
124 |
14.8 |
|
Krishana Phosch |
27-Feb-17 |
746 |
501 |
67.2 |
|
Global Educat |
1-Mar-17 |
744 |
373 |
50.1 |
|
RMC Switchgears |
14-Mar-17 |
736 |
353 |
48 |
|
Laxmi Cots |
31-Mar-17 |
723 |
281 |
38.9 |
|
Dev Info Tec |
17-Apr-17 |
714 |
447 |
62.6 |
|
Vadivarhe Spec |
2-Jun-17 |
681 |
405 |
59.5 |
|
Globe Tex |
23-Jun-17 |
666 |
145 |
21.8 |
|
Accord Syn |
6-Jul-17 |
658 |
223 |
33.9 |
|
Captain Tech |
1-Aug-17 |
640 |
174 |
27.2 |
|
Shanti Overseas |
3-Aug-17 |
638 |
310 |
48.6 |
|
Surevin BPO |
9-Aug-17 |
634 |
223 |
35.2 |
|
Pashupati Cots |
8-Sep-17 |
614 |
204 |
33.2 |
|
Share Ind Sec |
5-Oct-17 |
596 |
457 |
76.7 |
|
RKEC Project |
9-Oct-17 |
594 |
475 |
80 |
|
DP Abhushan |
23-Oct-17 |
585 |
331 |
56.6 |
|
Ani Integrated |
20-Nov-17 |
565 |
400 |
70.8 |
|
Dynamic Cable |
14-Dec-17 |
547 |
357 |
65.3 |
|
Vasa Retail |
6-Feb-18 |
511 |
230 |
45 |
|
Hindcon Chem |
9-Mar-18 |
490 |
159 |
32.4 |
|
Tara Chand Logi |
23-Mar-18 |
480 |
325 |
67.7 |
|
Dhruv Consult |
10-May-18 |
449 |
367 |
81.7 |
|
Sonam Clock |
14-Jun-18 |
424 |
191 |
45 |
|
Kritika Wires |
10-Oct-18 |
345 |
121 |
35.1 |
|
Parin Furnitur |
9-Oct-18 |
346 |
80 |
23.1 |
|
Mindpool Tech |
28-Feb-19 |
248 |
58 |
23.4 |
|
VR Films Stud |
30-Apr-19 |
210 |
84 |
40 |
|
Evans Elect |
13-May-19 |
202 |
68 |
33.7 |
|
Earum Pharma |
4-Jul-19 |
165 |
118 |
71.5 |
|
Gian Life Care |
13-Jan-20 |
37 |
24 |
64.9 |
|
Hindprakash Ind |
27-Jan-20 |
27 |
23 |
85.2 |
As regards market performance of HEM-managed issues, in last five years the merchant banker helped to tap about Rs 465 cr through the SME platform whose current market value is 15% more than the offer value. Whereas 9 IPOs have fetched capital appreciation of more than 100%, 12 IPOs have lost more than 50% each.
|
ISSUER NAME |
IPO DATE |
IPO |
CURRENT |
GAIN |
% |
|
OP Chains |
30-Mar-15 |
2.04 |
2.04 |
0 |
0.0 |
|
Junction Fabric |
25-Jun-15 |
1.6 |
6.5 |
4.9 |
306.3 |
|
Loyal Equip |
3-Jul-15 |
3.24 |
11.73 |
8.49 |
262.1 |
|
Emkay Tap Cut |
27-Jul-15 |
15.55 |
7.49 |
-8.06 |
-51.8 |
|
Univers Auto |
19-Aug-15 |
3.24 |
8.64 |
5.4 |
166.7 |
|
Bella Casa |
28-Sep-15 |
3.43 |
27.67 |
24.24 |
706.8 |
|
Vishal Bear |
28-Sep-15 |
3.24 |
10.5 |
7.26 |
224.0 |
|
Arambhan Hosp |
29-Sep-15 |
1.86 |
0.74 |
-1.12 |
-60.0 |
|
Ragh Prod Enhan |
31-Mar-16 |
7.49 |
32.26 |
24.77 |
330.8 |
|
Adv Syntex |
30-Jun-16 |
2.52 |
2.17 |
-0.35 |
-13.8 |
|
Madhya Bha Agro |
29-Aug-16 |
13.9 |
39.37 |
25.48 |
183.3 |
|
Art Nirman |
30-Sep-16 |
5.01 |
5.26 |
0.25 |
5.0 |
|
Pansari Dev |
30-Sep-16 |
10.19 |
10.63 |
0.44 |
4.3 |
|
Aurangabad Dist |
30-Sep-16 |
7.7 |
8.57 |
0.87 |
11.3 |
|
Globe International |
30-Sep-16 |
5.17 |
3.12 |
-2.05 |
-39.6 |
|
Dhanuka Real |
30-Sep-16 |
4.22 |
0.77 |
-3.46 |
-81.9 |
|
Krishana Phosch |
13-Feb-17 |
19.73 |
33.57 |
13.84 |
70.2 |
|
Global Educat |
16-Feb-17 |
10.25 |
5.47 |
-4.78 |
-46.6 |
|
RMC Switchgears |
28-Feb-17 |
4.15 |
2.83 |
-1.32 |
-31.9 |
|
Laxmi Cots |
17-Mar-17 |
9.6 |
4.32 |
-5.28 |
-55.0 |
|
Dev Info Tec |
31-Mar-17 |
6.25 |
14.14 |
7.89 |
126.3 |
|
Vadivarhe Spec |
22-May-17 |
14.46 |
4.32 |
-10.14 |
-70.1 |
|
Globe Tex |
12-Jun-17 |
13.71 |
6.99 |
-6.72 |
-49.0 |
|
Accord Syn |
22-Jun-17 |
5.83 |
1.6 |
-4.23 |
-72.5 |
|
Captain Tech |
20-Jul-17 |
5.7 |
5.99 |
0.29 |
5.0 |
|
Shanti Overseas |
21-Jul-17 |
10.02 |
4.06 |
-5.96 |
-59.5 |
|
Surevin BPO |
28-Jul-17 |
3.65 |
6.89 |
3.24 |
88.8 |
|
Pashupati Cots |
28-Aug-17 |
20.88 |
17.8 |
-3.08 |
-14.7 |
|
Share Ind Sec |
21-Sep-17 |
26.37 |
47.53 |
21.16 |
80.2 |
|
RKEC Project |
25-SeCp-17 |
28.7 |
29.66 |
0.96 |
3.3 |
|
DP Abhushan |
9-Oct-17 |
16.61 |
38.85 |
22.25 |
133.9 |
|
Ani Integrated |
8-Nov-17 |
25.66 |
6.82 |
-18.83 |
-73.4 |
|
Dynamic Cable |
4-Dec-17 |
23.38 |
15.78 |
-7.6 |
-32.5 |
|
Vasa Retail |
24-Jan-18 |
4.8 |
1.14 |
-3.66 |
-76.3 |
|
Hindcon Chem |
26-Feb-18 |
7.73 |
3.31 |
-4.42 |
-57.1 |
|
Tara Chand Logi |
13-Mar-18 |
20.46 |
13.39 |
-7.07 |
-34.5 |
|
Dhruv Consult |
27-Apr-18 |
23.2 |
11.34 |
-11.86 |
-51.1 |
|
Sonam Clock |
1-Jun-18 |
10.11 |
10.56 |
0.45 |
4.4 |
|
Kritika Wires |
26-Sep-18 |
15.4 |
16.6 |
1.2 |
7.8 |
|
Parin Furniture |
26-Sep-18 |
18.9 |
17.94 |
-0.96 |
-5.1 |
|
Mindpool Tech |
14-Feb-19 |
3.6 |
1.8 |
-1.8 |
-50.0 |
|
VR Films Stud |
12-Apr-19 |
2.27 |
4.98 |
2.72 |
119.7 |
|
Evans Elect |
30-Apr-19 |
1.93 |
6.88 |
4.95 |
255.8 |
|
Earum Pharma |
21-Jun-19 |
6.65 |
8.65 |
2 |
30.0 |
|
Gian Life Care |
31-Dec-19 |
3.12 |
2.05 |
-1.06 |
-34.1 |
|
Hindprakash Ind |
15-Jan-20 |
11.52 |
11.81 |
0.29 |
2.5 |
|
|
|
465.04 |
534.528 |
69.528 |
15.0 |