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Atam Valves BSE SME IPO review (Avoid)

Review By Dilip Davda on Sep 15, 2020

•    AVL engaged in manufacturing of valves and fittings.
•    Products are sold under the branch names ATAM and FEBI.
•    The company posted inconsistency in financial performance.
•    At a P/E of 33.61, IPO is aggressively priced.

ABOUT COMPANY:
Atam Valves Ltd. (AVL) is a manufacturer of reliable and quality valves. Both its manufacturing facilities in Jalandhar suit most of the manufacturing related requirements. Most of the valves are tailored to meet customers' specific requirements. It works in close tandem with clients to match valves to their most complex applications.

Many of AVL's design innovations have been the direct result of working closely with customers to solve difficult applications at their end. Its products are supplied in India as well as all over the world under two brands, viz., ATAM and FEBI. Under brand ATAM, it deals in Valves and fittings, steam traps and strainers. Under brand FEBI, it deals in Ball-Valves. AVL exports its products to more than 13 regions, viz., United States, Kuwait, Kenya, South Africa, Malaysia, Dubai, Indonesia, Australia, Oman, Philippines, Ethiopia, Nepal and United Kingdom.

ISSUE DETAILS/CAPITAL HISTORY:
To meet its plans for repayment/prepayment of certain borrowings (Rs.3.14 cr.) and general corpus find (Rs. 1.03 cr.) needs, AVL is coming out with a maiden IPO of 1125000 equity shares of Rs.10 each at a fixed price of Rs. 40 per share to mobilize Rs. 4.50 cr. The issue opens for subscription on September 18, 2020, and will close on September 25, 2020. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME platform.

Issue constitutes 27.27% of the post issue paid-up capital of the company. The company will be spending Rs. 0.33 cr. for this IPO process. The issue is solely lead managed by Fedex Securities Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd. is acting as a Market Maker for this company. Having raised entire equity at par, AVL issued bonus shares in the ratio of 2 shares for 1 share held in September 2017.

The average cost of acquisition of shares by the promoters is Rs.2.55 and Rs. 6.09 per share. Post issue, AVL's current paid-up equity capital of Rs. 3.00 cr. will stand enhanced to Rs. 4.13 cr. With this IPO, the company is looking for a market cap of Rs. 16.50 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AVL has posted turnover/net profits of Rs. 17.32 cr. / Rs. 0.51 cr. (FY18), Rs. 18.34 cr. / Rs. 0.65 cr. (FY19) and Rs. 16.33 cr. / Rs. 0.49 cr. (FY20). It has posted inconsistency in the top and bottom lines.

For the last three fiscals, AVL has posted an average EPS of Rs. 1.87 and an average RoNW of 12.37%. The issue is priced at a P/BV of 2.47 on the basis of its NAV of Rs. 16.19 as on March 31, 2020, and at a P/BV of 1.76 on the basis of post-issue NAV of Rs. 22.68.

If we attribute FY20 earnings on fully diluted post issue equity, then asking price is at a P/E of around 33.61 against the industry average of 10.86, making it a costly offer.

COMPARISION WITH LISTED PEERS:
As per offer documents, AVL has shown Chemtech Industrial as its listed peer. It is currently trading at a PE of 8.05 (as on September 15, 2020 closing). However, it is not fully comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's performance front, this is the 11th mandate from its stable in the last four fiscals (including the ongoing one). Out of last 10 listings, 1 opened at discount, 1 at par and the rest at premiums ranging from 0.16% to 16.67% on the day of listing. 


Conclusion / Investment Strategy

AVL has posted inconsistency in its top and bottom lines for the last three fiscals. The issue is priced aggressively compared to a listed peer. There is no harm in giving this costly offer a "MISS".

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Sep 15, 2020

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

Atam Valves SME IPO FAQs

  1. 1. Why Atam Valves SME IPO?

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

  2. 2. How is Atam Valves SME IPO?

    Read the Atam Valves SME IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Atam Valves SME IPO what should investors do?

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

  4. 4. Is Atam Valves SME IPO good?

    Our recommendation for Atam Valves SME IPO is to avoid.

  5. 5. Is Atam Valves SME IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Atam Valves SME IPO.

  6. 6. When will Atam Valves SME IPO allotment status?

    The Atam Valves SME IPO allotment status will be available on or around Sep 30, 2020. The allotted shares will be credited in demat account by Oct 5, 2020. Visit Atam Valves SME IPO allotment status to check.

  7. 7. When will Atam Valves SME IPO list?

    The Atam Valves SME IPO will list on Tuesday, October 6, 2020, at BSE SME.