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Evans Electric BSE SME IPO review (May apply)

Review By Dilip Davda on Apr 24, 2019

•    EEL has created a niche place in engineering servicing segment.
•    Last three fiscal's financial data shows inconsistency.
•    Issue priced lucratively, but the issue is too small for migration to the main board in two years.
•    Spending 23% to mobilize such small proceeds.

ABOUT COMPANY:
Evans Electric Ltd. (EEL) is engaged in the business of repairing, re-winding and re-designing including in-house manufacturing of replacement components of small, medium and large electric motors, generators and transformers, which are used in Thermal, Hydro, Diesel, Gas & Nuclear Electric Power Generation, Petroleum Refineries, Chemicals & Fertilizers, Cement Plants, Steel Plants, Tyre Manufacturing, Sugar Mills, Oil & Gas Exploration, Shipping, Mining and Railway Traction.

EEL assess the damaged equipment and suggest repairing process with certain critical replacement/specialized tools component in-house developments.  It also provides on-site repair services for large size equipment.

EEL started its business with repairing and rewinding of low voltage AC and DC electric motors and generators and then later diversified into repairing and rewinding of high voltage power & distribution transformers and further started with manufacturing of allied products such as commutators for DC machines, specialized contacts for Switchgear and strip Heaters. The company is executing orders received from foreign countries such as Bangladesh; Malaysia & Sri Lanka which includes contract based services.

With successful repairs of 40,000 KvA – 11,000 volts generating sets of Uttar Pradesh State Electricity Board, Big Rotating component of a Nuclear-Powered Generator, Rewound and commissioned a complex 33KV rated Turbo-Generator, EEL has created a niche place in this segment. Its clientele covers a wide range of industries from Thermal, Hydro, Nuclear, Gas & Diesel Power Generation to Chemicals & Fertilizers, Cement, Oil & Gas Refineries, Steel Plants, Shipping, Offshore Oil & Gas Exploration, Railways & and Renewable Energy.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs.1.11 cr.) and general corporate funds (Rs. 0.37 cr.) requirement, EEL is coming out with a maiden IPO of 372000 equity shares of Rs. 10 each at a fixed price of Rs. 52 per share to mobilize Rs. 1.93 cr.  The issue opens for subscription on 30.04.19 and will close on 03.05.19. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 27.11% of the post issue paid up capital of the company. EEL is spending Rs. 0.45 cr. (around 23%) to mobilize Rs. 1.93 cr.

The issue is solely lead managed by Hem Securities Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also acting as a market maker for the issue.

Company has issued all its equity so far at par. It has also issued bonus shares in the ratio of 1 for 1 in February 1994, 3 for 2 in November 1996 and 1 for 1 in February 2019. The average cost of acquisition of shares by the promoters is Rs. 4.23 per share. Post issue, EEL's current paid up equity capital of Rs. 1.00 cr. will stand enhanced to Rs. 1.37 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, EEL has posted turnover/net profits of Rs. 5.12 cr. / Rs. 0.41 cr. (FY16), Rs. 10.72 cr. / Rs. 2.37 cr. (FY17) and Rs. 5.87 cr. / Rs. 0.46 cr. (FY18). For the first seven months ended on 31.10.18, it has earned a net profit of Rs. 0.58 cr. on a turnover of Rs. 4.00 cr. Thus it has shown exceptional performance for FY17.

For the last three fiscals, EEL has reported an average EPS of Rs. 10.90 and an average RoNW of 16.66%.

The issue is priced at a P/BV of 0.68 based on its NAV of Rs. 76.53 as on 31.10.18 and at a P/BV of 0.78 on the basis of post issue NAV of Rs. 66.57.

If we annualize latest earnings and attribute it on fully diluted post issue equity, then asking price is at a P/E of around 7.19. The issue appears lucratively priced.

COMPARISION WITH LISTED PEERS:
As per offer documents, it has no listed peers to compare with.

MERCHANT BANKER'S PERFORMANCE:
On merchant banker's front, this is the 35th mandate from its stable in last three fiscals. Out of last 10 listings, 2 opened at discount, 1 at par and the balance 7 with premiums ranging from 0.16% to 20%. Thus it has an average track record.


Conclusion / Investment Strategy

Company's financial performance shows inconsistency. Based on this performance, the issue is priced lucratively. However, considering the issue size and the post-issue equity, it will be a long wait for the migration to the main board. Cash surplus, risk savvy investors may consider investment for long term at their own risk.

Review By Dilip Davda on Apr 24, 2019

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

Evans Electric IPO FAQs

  1. 1. Why Evans Electric IPO?

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

  2. 2. How is Evans Electric IPO?

    Read the Evans Electric IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Evans Electric IPO what should investors do?

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

  4. 4. Is Evans Electric IPO good?

    Our recommendation for Evans Electric IPO is to subscribe for long term.

  5. 5. Is Evans Electric IPO worth Investing?

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

  6. 6. When will Evans Electric IPO allotment status?

    The Evans Electric IPO allotment status will be available on or around May 8, 2019. The allotted shares will be credited in demat account by May 10, 2019. Visit Evans Electric IPO allotment status to check.

  7. 7. When will Evans Electric IPO list?

    The Evans Electric IPO will list on Monday, May 13, 2019, at BSE SME.