Atal Realtech NSE SME IPO review (May apply)

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Review By Dilip Davda on September 26, 2020

•    ARL is engaged in construction and engineering services segments
•    The company also does trading in segment related materials.
•    It has shown inconsistency in bottom lines for the last three fiscals.
•    Based on P/E, P/BV parameters, the issue appears fully priced.
•    This sector is witnessing downturn with subdued demand due to pandemic.

ABOUT COMPANY:
Atal Realtech Ltd. (ARL) is a construction company providing integrated civil works contracting and engineering services for structural construction and infrastructure sector projects and is a registered contractor with the Government of Maharashtra Public Works Department in Class I-A. It engages in contracting and sub-contracting for various government and private projects which includes the construction of commercial structures and industrial structures.

The company is situated at Nashik and many of its project sites are located in the State of Maharashtra, though it has undertaken projects in other parts of India. Majority of the construction activity being undertaken includes civil & structural construction and infrastructure contracts under subcontracting by main contractors, who have been allotted the project by a principal employer. Further, ARL has undertaken a few projects directly as a Contractor for certain private construction companies and real estate developers.

Company's revenue model also includes trading of certain construction materials. Besides undertaking contracted and / or sub-contracted projects, it is also engaged in trading activities, wherein the company is supplying construction materials to various clients as per their specific requirements.

ISSUE DETAILS/CAPITAL HISTORY:
To meet its plans for working capital (Rs. 1.55 cr.) and general corpus fund (Rs. 0.47 cr.), ARL is coming out with a maiden IPO of 1504000 equity shares of Rs.10 each at a fixed price of Rs. 72 per share to mobilize Rs. 10.83 cr. The issue consists of a fresh issue of 304000 equity shares (Rs. 2.19 cr.) and an offer for sale of 1200000 equity shares (Rs. 8.64 cr.). The issue opens for subscription on September 30, 2020, and will close on October 07, 2020. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge platform.

Issue constitutes 30.48% of the post issue paid-up capital of the company. The company will be spending Rs. 0.52 cr. for this IPO process.

The issue is jointly lead managed by Aryaman Financial Services Ltd. and Galactico Corporate Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is acting as a Market Maker for this company. Having issued initial equity at par, the company raised/converted further equity in the price range of Rs. 100 - Rs. 118 between August 2018 and February 2019.

The average cost of acquisition of shares by the promoters is Rs. 4.15 per share. Post issue, ARL's current paid-up equity capital of Rs. 4.63 cr. will stand enhanced to Rs. 4.93 cr. With this IPO, the company is looking for a market cap of Rs. 18.50 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, on a standalone basis, ARL has posted turnover/net profits of Rs. 51.57 cr. / Rs. 2.32 cr. (FY18), Rs. 58.26 cr. / Rs. 2.12 cr. (FY19) and Rs. 58.69 cr. / Rs. 2.62 cr. (FY20). It has posted static average top line with inconsistency in bottom lines.

For the last three fiscals, on a standalone basis, ARL has posted an average EPS of Rs. 5.45 and an average RoNW of 11.72%. The issue is priced at a P/BV of 1.22 on the basis of its NAV of Rs. 59.07 as on March 31, 2020, and at a P/BV of 1.20 on the basis of post-issue NAV of Rs. 59.87.

If we attribute FY20 earnings (on a consolidated basis) on fully diluted post issue equity, then asking price is at a P/E of around 13.56 against an industry average of 18.3, making it fully priced offer.

COMPARISION WITH LISTED PEERS:
As per offer documents, ARL has shown Dilip Buildcon, JMC Projects and Prestige Estate as its listed peers. They are currently trading at a P/Es of around 14.21, 39.53 and 42.85 (as on September 25, 2020). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 23rd mandate from Aryaman Financial in the last three fiscals. Out of last 10 listings, 2 opened at a discount and the rest at premiums ranging from 0.02% to 2.16% on the day of listing.  While this is the first mandate from Galactico Corporate and has no track records.

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