Fabtech Techno BSE SME IPO review (Apply)

•    The company enjoys niche place in building cleanrooms for pharma, healthcare and biotech sectors, including related services.
•    It posted steady growth from FY22 to FY23, but suffered a setback following change in product mix and delayed shipments of orders.
•    Based on its recent earnings, the issue appears fully priced. 
•    It may catch first mover fancy post listing.
•    Investors may park funds for the medium to long term.  

ABOUT COMPANY:
Fabtech Technologies Cleanrooms Ltd. (FTCL) is engaged in the business of manufacturing and providing design-to-validation solutions of pre-engineered and pre-fabricated modular panels and doors for building cleanrooms for pharmaceutical, healthcare & biotech sectors. Cleanrooms are specially designed or constructed with a controlled environment to ensure low levels of pollutants, dust, airborne microbes, aerosol and chemical vapour. Its cleanroom solutions, which are tailor made as per customers’ designs and global regulatory standards, comprises of wall panels, view panels, doors, risers, ceiling panels, covings, heat ventilation air conditioning (“HVAC”) system, epoxy flooring and electrification works. 

The company provides a comprehensive service which includes initial design to validation, encompassing engineering, manufacturing, quality assurance, timely delivery, installation, commissioning, and validation and certification. Its cleanroom products are certified by FM Global to ensure compliance with fire safety measures. FTCL caters to the customers who are mainly operating in pharmaceuticals, healthcare and biotech sectors. Its customers include large pharmaceutical and healthcare companies such as Unichem Laboratories Ltd, Desano Pharmaceuticals Private Limited Apitoria Pharma Pvt Ltd (a 100% subsidiary of Aurobindo Pharma Ltd), Hamdard Laboratories (India), amongst others.

Its plant is well equipped with a complete range of high performing machinery to manufacture cleanroom partitions. The company, through one of its subsidiaries, Altair Partition Systems LLP (“Altair”), is engaged in the business of manufacturing modular panels of economical grade. The manufacturing facility of Altair is located at Murbad, Thane with a total area of about 25,000 sq. ft. which is taken on lease. It has acquired, in aggregate 26% equity share capital of Advantek Air Systems Private Limited (“Advantek”), which is engaged in the business of manufacturing of Air Handling Units, a critical component essential for the optimal operation of cleanrooms.

As part of strategy, it has recently invested in Kelvin Air Conditioning and Ventilation Systems Private Limited (“Kelvin”) by subscription to Compulsory Convertible Preference Shares which shall represent 33.33% shareholding in Kelvin upon its conversion. Kelvin is an integrator for critical HVAC applications catering to a wide spectrum of industries and businesses. This strategic move aligns with FTCL’s commitment to bolstering capabilities and enhancing customer base in key sectors such as semiconductors, automobiles, renewable energy, data centers, etc. Further, it also proposes to acquire additional number of equity shares representing at least 18% of equity shares of Kelvin on a fully diluted basis from the proceeds of this Issue. 

The proposed acquisition will facilitate sourcing of HVAC systems internally, thereby boosting its operational efficiencies and ability to take on larger projects. FTCL is a part of the Fabtech Group which commenced its operations in 1996 and has over 28 years of operating history in the engineering business. The Company was originally incorporated as “Fabtech Turnkey Projects International Private Limited” in 2015. In order to undertake segregation of modular panels business and achieve administrative and operational efficiencies, the Modular Panels Division of Fabtech Technologies International Private Limited (formerly known as Fabtech Technologies International Limited) was demerged and transferred to the company, then known as Fabtech Turnkey Projects International Private Limited, pursuant to the Scheme of Arrangement approved by National Company Law Tribunal, Mumbai bench vide order dated November 19, 2020. Subsequently, the name of company was changed from Fabtech Turnkey Projects International Private Limited to Fabtech Technologies Cleanrooms Private Limited in January 2021 and further to Fabtech Technologies Cleanrooms Limited in July 2024. As of November 30, 2024, it had 117 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3264000 equity shares of Rs. 10 each to mobilize Rs. 27.74 cr. at the upper cap. The company has announced a price band of Rs. 80 –  Rs. 85 per share. The issue opens for subscription on January 03, 2025, and will close on January 07, 2025. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 14.00 cr. for working capital, Rs. 5.50 cr. for acquiring equity shares in Kelvin Air Conditioning, and the rest for general corporate purposes

The IPO is solely lead managed by Vivro Financial Services Pvt. Ltd., and Maashitla Securities Pvt. Ltd., is the registrar to the issue. Rikhav Securities Ltd. is the market maker for the company. Vivro Financial Services Pvt. Ltd. is the syndicate member.

The company has issued/converted initial equity shares capital at par value. The company issued further equity shares at a fixed price of Rs. 215.00 per share in May 2024. It also issued bonus shares in the ratio of 2 for 1 in June 2024. The average cost of acquisition of shares by the promoters is Rs. Negligible, Rs. NIL, and Rs. 0.53 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.06 cr. will stand enhanced to Rs. 12.32 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 104.72 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 113.95 cr. / Rs. 3.65 cr. (FY22), Rs. 125.10 cr. / Rs. 8.01 cr. (FY23), and Rs. 97.99 cr. / Rs. 5.65 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 5.19 cr. on a total income of Rs. 62.23 cr. According to the management, due to change in product mix and delayed completion of orders on schedule resulted in lower income and profits for FY24. (Refer page 228 of the offer document).

For the last three fiscals, the company has reported an average EPS of Rs. 7.35 and an average RoNW of 14.08%. The issue is priced at a P/BV of 1.24 based on its NAV of Rs. 68.33 as of September 30, 2024, and at a P/BV of 1.17 based on its post-IPO NAV of Rs. 72.75 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 10.08, and based on FY24 earnings, it stands at 18.52. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 3.16% (FY22), 6.37% (FY23), 5.90% (FY24), 8.68% (H1-FY25), and RoCE margins of 13.27%, 26.18%, 15.83%, 11.85%, for the referred periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in July 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER’S TRACK RECORD:
This is the 4th mandate from Vivro Financial in the last three fiscals, out of the last 3 listings all listed with premiums ranging from 43.98% to 90% on the date of listing.