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BEW Eng. NSE SME IPO review (May apply)

Review By Dilip Davda on Aug 28, 2021

•    BEW has shown a growing pattern for top lines for the last three fiscals.
•    However, it has shown inconsistency for bottom lines with super profit for FY21.
•    Sustainability of super performance is a major concern.
•    The company has borrowings at alarming levels.
•    Though the issue is lucratively priced, risk seekers may consider an investment.

ABOUT COMPANY:
BEW Engineering Ltd. (BEW) is engaged in the design and manufacture of Pharmaceutical & Chemical plants and process equipment. It designs and manufactures a special range of filtration, mixing and drying equipment specifically used in Pharmaceuticals, Sterile Applications, Intermediate Compounds, Fine Chemicals, Chemicals, Agro Chemicals, Pesticides, Insecticides, Dyes and Food Products. These equipments are manufactured from materials such as Stainless Steel, Alloy Steel, Hastelloy etc. with various linings as per International Codes: a) IS b) BS c) ASME d) TEMA e) DIN f) CE Marks etc.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.48 cr.) and general corpus funds (Rs. 0.19 cr.), BEW is coming out with a maiden IPO of 684000 equity share of Rs. 10 each at a fixed price of Rs. 58 per share to mobilize Rs. 3.97 cr. The issue opens for subscription on September 02, 2021, and will close on September 07, 2021. Minimum application is to be made for xx shares and in multiples thereon, thereafter. Post allotment, shares will be listed on the NSE SME Emerge platform. The issue constitutes 26.50% of the post issue paid-up capital of the company. The company will be spending Rs. 0.30 cr. for this IPO process.

The issue is solely lead managed by First Overseas Capital Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. NNM Securities Pvt. Ltd. will be the market maker for this issue.

Having issued initial equity at par, the company raised further equity in the price range of Rs. 25 to Rs. 50 per share between February 2013 to March 2021. It did a rights issue at Rs. 30 per share in March 2021 i.e. just before the IPO. The average cost of acquisition of shares by the promoters is Rs. 20.61 and Rs. 24.89 per share.

Post issue BEW's current paid-up equity capital of Rs. 1.90 cr. will stand enhanced to Rs. 2.58 cr. Based on its IPO pricing, the company is looking for a market cap of Rs. 14.97 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted turnover/net profits of Rs. 63.85 cr. / Rs. 0.71 cr. (FY19), Rs. 67.71 cr. / Rs. 0.66 cr. (FY20) and Rs. 73.55 cr. / Rs. 2.87 cr. (FY21). The sudden boost in bottom lines for FY21 raises eyebrows as it was a pandemic year. Super profits for pre-IPO year lead to some accounting jugglery in inventory. The sustainability of such performance going forward is doubtful.

Based on interest outgo and finance cost, the company has higher debt as of March 31, 2021 (over Rs. 28 cr. short/long term borrowings (see page no. 32 of offer documents).

With the super earnings for FY21, for the last three years, the company has posted an average EPS of Rs. 10.93 and an average RoNW of 18.58%. The issue is priced at a P/BV of 1.13 based on its NAV of Rs. 51.24 per share as of March 31, 2021, and at a P/BV of 1.09 based on its post-issue NAV of Rs. 53.03 per share.
If we attribute FY21's super earnings on post-issue fully diluted equity, then the asking price is at a P/E of 5.21 making it a lucratively priced offer. But based on its average EPS P/E comes to 5.31 and based on FY20 earnings it comes to 22.65.

COMPARISON WITH LISTED PEERS:
As per offer documents, BEW has shown GMM Pfaudler and HLE Glascoat as its listed peers. They are currently trading at a P/E of 60.45 and 94.12 (as of August 27, 2021). Its comparison with established players is an eyewash for tempting investors. However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
The company has not declared any dividend and has no formal dividend policy. However, post listing it will follow a prudent dividend policy based on its financial performance and future prospects.

MERCHANT BANKER'S PERFORMANCE:
This is the 10th mandate from First Overseas Capital Ltd. (FOCL) in the last four fiscals (including the ongoing one). However, it has shown past listing performance for 6 IPOs only out of which 2 opened at par and the rest with premiums ranging from 1.4% to 5.89% on the day of listings. (Refer page no. 165 of the offer documents). According to FOCL's website, it has handled 9 IPOs in the period referred in the offer documents and based on it this the current mandate is the 10th one.   Merchant banker's website does not have any info on the track record of its mandate.


Conclusion / Investment Strategy

Though the prima facie issue appears lucratively priced, its alarming level of borrowings and the sustainability of its profitability going forward raised concern. Even the equity base post IPO is too small and it will take a pretty long time to migrate to the mainboard. Considering all these, risk seekers cash surplus investors may consider investing for the long term.

Review By Dilip Davda on Aug 28, 2021

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

BEW Engineering IPO FAQs

  1. 1. Why BEW Engineering IPO?

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

  2. 2. How is BEW Engineering IPO?

    Read the BEW Engineering IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. BEW Engineering IPO what should investors do?

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

  4. 4. Is BEW Engineering IPO good?

    Our recommendation for BEW Engineering IPO is to subscribe for long term.

  5. 5. Is BEW Engineering IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the BEW Engineering IPO.

  6. 6. When will BEW Engineering IPO allotment status?

    The BEW Engineering IPO allotment status will be available on or around Sep 13, 2021. The allotted shares will be credited in demat account by Sep 15, 2021. Visit BEW Engineering IPO allotment status to check.

  7. 7. When will BEW Engineering IPO list?

    The BEW Engineering IPO will list on Thursday, September 16, 2021, at NSE SME.