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Aaron Industries NSE SME IPO review (Avoid)

Review By Dilip Davda on Aug 14, 2018

•    Company’s financial performance was average for FY15-17.
•     Posted spectacular results for FY18. Will it sustain?
•    Over 2.5 times paid up equity post issue.
•    Issue is fully priced.
•     Average track record of merchant banker.

About Company:
Aaron Industries Ltd. (AIL) is a MOTI group company that started as elevator cabins designing company and also introduces products like cable tray and building hardware materials such as Z perlins, slotted channels, busbar chambers, distribution boxes, loom switches etc. It also ventured into manufacturing and trading in elevator products, parts and thus became under one roof supplier for these products.

Capital History/Issue details:
To part finance its plans for set up of new line of business, working capital and general corpus fund needs,  AIL is coming out with a maiden IPO of 1257000 equity shares of Rs. 10 each at a fixed price of Rs. 38 per share to mobilize Rs. 4.78 crore. Issue opens for subscription on 20.08.18 and will close on 24.08.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 26.28% of post issue paid up capital of the company. Issue is solely lead managed by Gretex Corporate Services Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a price of Rs. 11 to Rs.17 per share between February 2016 and January 2018. It has also issued bonus shares in the ratio of 4 for 1 in July 2015, 1 for 2 in July 2017 and 7 for 8 in June 2018. Post issue, its current paid up equity capital of Rs. 3.53 cr. will stand enhanced to Rs. 4.78 cr. Average cost of acquisition of shares by the promoters is Rs. 4.72, Rs. 6.23, Rs. 6.36, Rs. 6.87, Rs. 7.29 and Rs. 8.57 per share.

Financial performance:
On performance front, for last four fiscals AIL posted turnover/net profits of 2.38 cr. / Rs. 0.04 cr. (FY15), Rs. 3.32 cr. / Rs. 0.04 cr. (FY16), Rs. 4.80 cr. / Rs. 0.05 cr. (FY17) and Rs. 11.79 cr. / Rs. 1.07 cr. Thus it has shown spectacular performance for FY18 which is a bit surprising. For last three fiscals, it has posted an average EPS of Rs. 6.24 and an average RoNW of 23.41% on the basis of paid up equity capital of Rs. 1.88 cr. as on 31.03.18. Issue is priced at a P/BV of 2.01 on the basis of its NAV of Rs. 18.94 as on 31.03.18. It has no listed peers to compare with. If we take latest earnings and attribute it to fully diluted equity post issue, then asking price is at a P/E of around 16 plus thus it appears fully priced. Sustainability of its FY18 performance in the year before IPO raises concern.

Merchant banker’s track record:
On merchant banker’s front, this is 13th mandate from its table in last three years. Out of last 10 listings, 1 opened at discount, 4 at par and the rest with a premium ranging from 1.92% to 8% on the day of listings. Thus it has average track record.


Conclusion / Investment Strategy

Issue appears fully priced on the basis of latest performance, which is also a bit surprising and raising concern over sustainability. There is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Aug 14, 2018

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

Aaron Industries IPO FAQs

  1. 1. Why Aaron Industries IPO?

    The initial public offer (IPO) of Aaron Industries Limited offers an early investment opportunity in Aaron Industries Limited. A stock market investor can buy Aaron Industries IPO shares by applying in IPO before Aaron Industries Limited shares get listed at the stock exchanges. An investor could invest in Aaron Industries IPO for short term listing gain or a long term.

  2. 2. How is Aaron Industries IPO?

    Read the Aaron Industries IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Aaron Industries IPO what should investors do?

    Aaron Industries IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Aaron Industries IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is Aaron Industries IPO good?

    Our recommendation for Aaron Industries IPO is to avoid.

  5. 5. Is Aaron Industries IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Aaron Industries IPO.

  6. 6. When will Aaron Industries IPO allotment status?

    The Aaron Industries IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit Aaron Industries IPO allotment status to check.

  7. 7. When will Aaron Industries IPO list?

    The Aaron Industries IPO will list on Monday, September 3, 2018, at NSE SME.