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DMR Hydro BSE SME IPO review (Avoid)

Review By Dilip Davda on Nov 22, 2021

•    DMR is engaged in engineering consultancy and related services.
•    Its top line remained static with a marginal rise in the bottom line for the last two fiscals.
•    Issue is fully structured with funding arrangements as indicated by spending.
•    Though price appears lucrative, sustainability of margins remains concerned.


ABOUT COMPANY:
DMR Hydroengineering & Infrastructures Ltd. (DMR) is engaged in the business of providing engineering consultancy and due diligence services to hydropower, dams, roads and railway tunnels. The services offered by the Company include the entire life cycle of projects covering design & engineering, due diligence & regulatory, bid management & construction engineering and quality & inspection. 

DMR offers Hydro Engineering and Infrastructure services viz., Strategic Advisory, Due Diligence Studies, Project Viability Analysis, Cost-Benefit Analysis, Risk Analysis, Regulatory Approvals, Monitoring and Evaluation, Geological Studies, Hydrological Studies, Hydraulic Studies, Hydraulic Design of Structures, Geotechnical Design of Surface and Underground Structures, Structural Design and Analysis, Dynamic Analysis, Numerical Analysis, Instrumentation Analysis, Detailed Design and Drawings, Bid level Designs and Drawings, Detailed Project Report, Feasibility Report, Layout Studies and Alternatives Analysis, Design Review, As-Built Drawings, Bid documents, Bill of Quantities, Construction Planning and Scheduling, Construction Management and Method Statements, Design and Engineering Support During Construction, Rate Analysis and Cost Estimates, Contract Management, Procurement Management, Project Management, Project Commissioning, Completion Report, QA/QC plans, Quality Assurance at Site, Pre-Dispatch Inspection, Third Party Inspection, Safety Inspection and O & M stage Inspection.

Domestically, it has a presence across 11 states and internationally, it provides services to over 5 countries including Nepal, Nigeria, Dubai, Germany and Senegal. For the financial years ending 2021, 2020 and 2019, its revenue from exports contributed 29.31%, 33.80% and 9.52% respectively of revenue from operations. Currently, it has 24 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for working capital (Rs. 0.97 cr.) and general corporate purpose (Rs. 0.34 cr.), DMR is coming out with a maiden IPO of 996000 equity shares of Rs. 10 each at a fixed price of Rs. 21 per share to mobilize Rs. 2.09 cr. The issue consists of a fresh equity issue of 798000 shares and offer for sale of 198000 shares. The issue opens for subscription on November 24, 2021, and will close on November 29, 2021. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.73% of the post issue paid-up capital of the company. DMR will spend approx. Rs. 0.46 cr. (21.99%) for this IPO process. This indicates that the issue is fully structured with funding arrangements. 

The issue is solely lead managed by Shreni Shares Pvt. Ltd., Skyline Financial Services Pvt. Ltd. is the registrar to the issue and Shreni Shares Pvt. Ltd. itself is the market maker for this issue. 

The company has issued entire equity at par so far and has also issued bonus shares in the ratio of 87 for 1 in March 2017, 0.15 for 1 in March 2018 and 1 for 1 in October 2021. The average cost of acquisition of shares by the promoters is Rs. 0.94 per share. 

Post issue, DMR's current paid-up equity capital of Rs. 2.93 cr. will stand enhanced to Rs. 3.73 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 7.83 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, DMR has posted turnover/net profits (loss) of Rs. 1.61 cr. / Rs. 0.30 cr. (FY19), Rs. 2.45 cr. / Rs. 0.52 cr. (FY20) and Rs. 2.44 cr. / Rs. 0.61 cr. (FY21). For the three months of the FY22 ended on June 30, 2021, it has earned a net profit of Rs. 0.20 cr. on a turnover of Rs. 0.69 cr. Its top line remained static for the last two fiscals. Even it is likely to be the same for the current fiscal as well based on Q1-FY22 performance indication. 

For the last three fiscals, it has posted an average EPS of Rs. 1.79 and an average RONW of 19.51%. The issue is priced at a P/BV of 3.40 based on its NAV of Rs. 6.17 as of June 30, 2021, and at a P/BV of 1.71 based on its post-issue NAV of Rs. 12.26. There appears to be some mistake in reporting of its NAV as of June 30, 2021, and other parameters in Basis for the Offer Price data of offer documents (page no. 72).

If we annualize the latest earnings and attribute it to fully diluted equity post issue, then the asking price is at a P/E of 9.81. Improved margins ahead of the IPO period raise concern. 

COMPARISON WITH LISTED PEERS:
As per offer documents, DMR has shown Dhruv Consultancy, Artefact Proj., MITCON Consultancy, Rudrabhishek Enterprises as its listed peers. They are currently trading at a P/E of 30.68, 15.25, 00 and 21.53 (as of November 22, 2021). However, they are not truly comparable on an apple to apple basis,  

DIVIDEND POLICY:
The company has not declared any dividend since FY19 till the filing of this offer documents. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S PERFORMANCE: 
This is the 7th mandate from Inventure Merchant Banker in the last three fiscals (including the ongoing one). Out of the last 6 listings, 2 opened at par and the rest with a premium ranging from 0.68% to 4.49% on the day of listing. 


Conclusion / Investment Strategy

The company is operating in a highly competitive and fragmented segment. There are many big players as well. Margins reported by it from FY20 till now raise the concern of sustainability going forward. Based on IPO expenses, this issue is fully structured with funding arrangements. Though the issue appears lucratively priced based on its super earnings, considering its minuscule performance and concern for the sustainability of margins going forward, there is no harm in ignoring this issue. There is some mismatch in the Basis for the offer price data.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Nov 22, 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

DMR SME IPO FAQs

  1. 1. Why DMR SME IPO?

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

  2. 2. How is DMR SME IPO?

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

  3. 3. DMR SME IPO what should investors do?

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

  4. 4. Is DMR SME IPO good?

    Our recommendation for DMR SME IPO is to avoid.

  5. 5. Is DMR SME IPO worth Investing?

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

  6. 6. When will DMR SME IPO allotment status?

    The DMR SME IPO allotment status will be available on or around Dec 2, 2021. The allotted shares will be credited in demat account by Dec 3, 2021. Visit DMR SME IPO allotment status to check.

  7. 7. When will DMR SME IPO list?

    The DMR SME IPO list date is not yet available. The DMR SME IPO is planned to list on Dec 7, 2021, at BSE SME.

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