Cospower Engg BSE SME IPO review (Avoid)

Review By Dilip Davda on Mar 14, 2020

•    CEL is engaged in the business of manufacturing of electrical goods.
•    It has posted inconsistency in its top and bottom lines so far.
•    The company operates in a low margin high competition segment.
•    This is the first mandate from the Lead Manager and has no track record.
•    The issue is aggressively priced at a P/E of around 23.

Cospower Engineering Ltd. (CEL) that was started as a partnership firm for trading and marketing of electric goods is currently engaged in the business of manufacturing of electrical panels, harmonic filters and substation and equipment mounting structure. The plant is equipped with machinery to produce quality products with an emphasis on quality and performance. The Company has also been providing turnkey services which involve supply, installation, commissioning, testing and comprehensive maintenance of electric products. There are few products which the Company do not manufacture but has to provide turnkey services by buying from other manufacturers. CEL has extended its product range to other power-related products that are needed to complete the electrical system. It is offering 'under one roof' a complete package of electrical system and solutions.

To part finance its working capital (Rs. 1.175 cr.) and general corpus fund needs (Rs. 0.38 cr.),  CEL is coming out with a maiden IPO of 400000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs.2.04 cr. The issue opens for subscription on 17.03.20 and will close on 19.03.20. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.67% of the post issue paid-up capital of the company. This issue is solely lead managed by Shreni Shares Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a market maker for this issue. CEL is spending Rs. 0.485 cr. (23.8%) of the total issue) for the entire IPO process. Thus the issue is fully structured with funding arrangements.

Having issued initial equity at par, CEL raised further equity for Rs. 127 per share in February 2020. It has also issued bonus shares in the ratio of 17 for 3 in December 2019. The average cost of acquisition of shares by the promoters is Rs. 12.91 per share. CEL's current paid-up equity capital of Rs. 1.10 cr. will stand enhanced to Rs. 1.50 cr. post this issue.  Post this issue, CEL is looking for a market cap of Rs. 7.65 cr.

For the last three fiscals, as per restated financial data, CEL has posted turnover/net profits of Rs. 9.57 cr. / Rs. 0.28 cr. (FY17), Rs. 8.61 cr. / Rs. 0.19 cr. (FY18) and Rs. 13.03 cr., / Rs. 0.52 cr. (FY19). Thus CEL has shown inconsistency in the top and bottom lines. For the first nine months of FY20, it has earned a net profit of Rs. 0.25 cr. on a turnover of Rs. 7.49 cr. Boost in net profit for pre-IPO year raises concern.

For the last three fiscals, CEL has posted an EPS of Rs. 3.69 and an average RoNW of 27.59%. The issue is priced at a P/BV of 1.81 based on its NAV of Rs. 28.21 as on 20.02.20 and at a P/BV of 1.49 based on post-issue NAV of Rs. 34.29.

If we annualize latest earnings and attribute it on fully diluted post issue equity, then asking price is at a P/E of around 23 making it aggressively priced offer.

As per offer documents, CEL has no listed peers to compare with.

This is the maiden mandate from this merchant banker and has no track record.

Conclusion / Investment Strategy

CEL's financial performance is showing inconsistency. Thanks to shares issued at Rs. 127 that boosted its NAV. Based on the latest restated financial parameters, the issue is aggressively priced. There is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Mar 14, 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

Cospower Engineering IPO FAQs

  1. 1. Why Cospower Engineering IPO?

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

  2. 2. How is Cospower Engineering IPO?

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

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

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

  4. 4. Is Cospower Engineering IPO good?

    Our recommendation for Cospower Engineering IPO is to avoid.

  5. 5. Is Cospower Engineering IPO worth Investing?

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

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

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

  7. 7. When will Cospower Engineering IPO list?

    The Cospower Engineering IPO will list on Monday, March 30, 2020, at BSE SME.