Aartech Solonics BSE SME IPO review (Avoid)

Review By Dilip Davda on Feb 15, 2019

•    ASL is in the field of service/solution provider in power sector.
•    It has multiple products under multiple technologies.
•    Sudden jump in bottom line for FY18 and H1 of FY19 raises concern.
•    Issue appears aggressively priced with based ib uts consolidated earnings.

ABOUT COMPANY:
Aartech Solonics Ltd. (ASL) is a system solution oriented R&D enterprice in the field of specialized and selected energy appliances. It is involved in the manufacturing of electricity distribution and control apparatus for a voltage exceeding 1000 volts. Similar products for voltage not exceeding 1000 volts are also manufactured. The product list includes boards, panels, consoles, cabinets, switches, fuses, voltage limiters, surge suppressors, junction boxes etc. ASL aims to be multi-product, multi-technology services/solution providing company in the power related field.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of investments in wholly owned subsidiaries, working capital and general corpus fund needs, ASL is coming out with a maiden IPO of 2120000 equity shares at a fixed price of Rs. 34 per share to mobilize Rs. 7.21 crore. Issue opens for subscription on 21.02.19 and will close on 26.02.19. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 30.03% of the post issue paid up capital of the company. Issue is solely Lead Managed by Swastika Investmart Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue.

Company's entire equity is issued at par so far. It has also issued bonus shares in the ratio of 6 for 1 (July 2009), 3 for 1 (Sept. 2010), Average cost of acquisition of shares by the promoters is Rs. 1.07 per share. Post issue ASL's current paid up equity capital of Rs.4.94 crore will stand enhanced to Rs. 7.06 crore.

FINANCIAL PERFORMANCE:
On financial performance front, for last three fiscals ASL has (on standalone basis) posted turnover/net profits of Rs. 10.26 cr. / Rs. 0.23 cr. (FY16), Rs. 13.42cr. / Rs. 0.30 cr. (FY17) and Rs. 12.09 cr. / Rs. 1.18 cr. (FY18). For first half of FY19 it has earned net profit of Rs. 0.60 cr. on a turnover of Rs. 4.17 cr. Thus sudden sump is bottom line for last one and half year is a bit surprising and raises concern. While on consolidated basis offer document has reported net profit of Rs. 0.76 cr. on a turnover of Rs. 11.10 cr. for FY18 and net profit of Rs. 0.30 cr. on a turnover of Rs. 4.14 cr.

For last three fiscals it has posted an average EPS of 1.47 and average RoNW of 4.11% (on standalone basis). For FY18 on a consolidated basis it has posted an average EPS of Rs. 0.74 and an average RoNW of 2.16%. Issue is priced at a P/BV of 9.44 on the basis of consolidated NAV of Rs. 36.01 as on 30.09.18 and at a P/BV of 9.60 on the basis of consolidated post issue NAV of Rs. 35.41.

If we annualize latest (consolidated) earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 40 making it aggressively priced offer. On standalone basis too the asking price is at a P/E of around 20.

COMPARE WITH  LISTED PEERS:
As per offer documents it has shown Star Delta and Transformers and Rectifiers as its listed peers who are currently trading at a P/Es of around 6 and 25 (as on 15.02.19 closing). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 18th mandate from its stable in last three fiscals. Out of last 10 listings 2 opened at discount to offer price and the rest 8 with a premium ranging from 1.67% to 20% on the day of listing.


Conclusion / Investment Strategy

On the basis of consolidated earnings, issue is priced aggressively and on the basis of standalone basis it appears highly priced. Sudden jump in bottom lines for last one and half year before the IPO raises concern. There is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Feb 15, 2019

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

Aartech Solonics IPO FAQs

  1. 1. Why Aartech Solonics IPO?

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

  2. 2. How is Aartech Solonics IPO?

    Read the Aartech Solonics IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Aartech Solonics IPO what should investors do?

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

  4. 4. Is Aartech Solonics IPO good?

    Our recommendation for Aartech Solonics IPO is to avoid.

  5. 5. Is Aartech Solonics IPO worth Investing?

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

  6. 6. When will Aartech Solonics IPO allotment status?

    The Aartech Solonics IPO allotment status will be available on or around Mar 22, 2019. The allotted shares will be credited in demat account by Mar 25, 2019. Visit Aartech Solonics IPO allotment status to check.

  7. 7. When will Aartech Solonics IPO list?

    The Aartech Solonics IPO will list on Wednesday, March 27, 2019, at BSE SME.

1 Comments

Arati
1. Arati  Feb 16, 2019 13:05 I Like It. | Report Abuse Reply 0
Sir, with due respect to your review, our company is in specialized energy application.. Jump in profits are due to customized solution offered for problems in Power industry. Power industry has atypical problems and that is where we provide customized solution.
The peers you have mentioned are actually not our peers as they are catering to different product segment.
We are into all three segments : generation/transmission and distribution of power. We expect post listing, we will be able to use our money into the manufacturing of super capacitors/ have deeper penetration in the incubation centre for startups along with expansion in product line in the principal company.
Arati Nath
CFO








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