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Jainam Ferro NSE SME IPO review (Avoid)

Review By Dilip Davda on Sep 25, 2021

•    JFAL is engaged in the manufacturing and marketing of ferroalloys.
•    The company has posted declining trends in its top lines for the last 3 years.
•    Higher earnings in pre-IPO year raise concern. 
•    The issue is aggressively priced based on super earnings.
•    There is no harm in giving this issue a MISS.

ABOUT COMPANY: 
Jainam Ferro Alloys (I) Ltd. (JFAL) is currently manufacturing two types of Ferro Alloys namely, Ferro Manganese (FeMn) and Silico-manganese (SiMn). Both the alloys are largely used in the Steel industry. Ferro-manganese adds strength, toughness and other properties to steel. Silicomanganese provides additional silicon which is a stronger De-oxidant in manufacturing steel. The Company also generates revenue from its trading activities of manganese ore, used as a raw material in manufacturing Ferroalloys.

In the year 2016, the Company took over the ferroalloy plant and leased mines of M/s Raghuvir Ferro Alloys Private Limited. The Company has not yet started extraction of manganese ore from these mines as the transfer of said mines to the name of the company in records of State Govt of Madhya Pradesh is yet pending.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 6.78 cr.), general corporate purpose (Rs. 1.85 cr.), JFAL is coming out with a maiden IPO of 2802000 equity shares of Rs. 10 each at a price of Rs. 70 per share to mobilize Rs. 19.61 cr. The issue consists of a fresh equity issue worth Rs. 9.11 cr. (1302000 shares) and offer for sale (OFS) worth Rs. 10.50 cr. (1500000 shares). The issue opens for subscription on September 28, 2021, and will close on September 30, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment shares will be listed on NSE Emerge. The issue constitutes 26.53% of the post issue paid-up capital of the company. JFAL will spend Rs. 1.04 cr. for this IPO process (including Rs. 0.49 cr. for fresh equity issue). Thus the issue is fully structured with required subscriptions.

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is the market maker for this issue. 

After the initial equity issue at par, the company raised further equity in the price range of Rs. 22.00 and Rs. 22.35 between June 2016 and March 2017. It has also issued bonus shares in the ratio of 7 for 5 in August 2018. The average cost of acquisition of shares by the promoters is Rs. 8.92 and Rs. 9.31 per share. 

Post issue, JFAL's current paid-up equity capital of Rs. 9.26 cr. will stand enhanced to Rs. 10.56 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 73.93 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, JFAL has posted turnover/net profits of Rs. 132.40 cr. / Rs. 2.89 cr. (FY19), Rs. 122.34 cr. / Rs. 0.86 cr. (FY20) and Rs. 102.52 cr./ Rs. 3.12 cr. (FY21). Though its topline has shown declining trends, its bottom line remained inconsistent with super earnings in FY21 (a pandemic year). 

For the last three fiscals, it has posted an average EPS of Rs. 2.52 and an average RoNW of 10.51%. The issue is priced at a P/BV of 2.71 based on its NAV of Rs. 25.81 as of March 31, 2021, and at a P/BV of 2.24 based on post issue NAV of Rs. 31.26. 

If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of around 23.73. 

COMPARISON WITH LISTED PEERS:
As per offer documents, JFAL has shown Maithan Alloy and Shyam Century as its listed peers. They are currently trading at a P/E of 9.24 and 10.29 (as of September 24, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
The company has not declared any dividend in the last five fiscals. However, it will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 12th mandate from Hem Securities in the last three fiscals (including the ongoing one). While the last mandate of Prevest is yet to be listed, out of the last 10 listings, 1 opened at discount, 3 at par and the rest with premiums ranging from 0.4% to 37.2% on the day of listings. 


Conclusion / Investment Strategy

The company has shown inconsistency in bottom lines with declining top lines. Based on super profits of FY21 the issue is aggressively priced. Though the sector is fancied by investors, higher pricing of the IPO makes this issue a costly bet. There is no harm in ignoring this costly bet.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Sep 25, 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

Jainam Ferro Alloys IPO FAQs

  1. 1. Why Jainam Ferro Alloys IPO?

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

  2. 2. How is Jainam Ferro Alloys IPO?

    Read the Jainam Ferro Alloys IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Jainam Ferro Alloys IPO what should investors do?

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

  4. 4. Is Jainam Ferro Alloys IPO good?

    Our recommendation for Jainam Ferro Alloys IPO is to avoid.

  5. 5. Is Jainam Ferro Alloys IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Jainam Ferro Alloys IPO.

  6. 6. When will Jainam Ferro Alloys IPO allotment status?

    The Jainam Ferro Alloys IPO allotment status will be available on or around Oct 5, 2021. The allotted shares will be credited in demat account by Oct 7, 2021. Visit Jainam Ferro Alloys IPO allotment status to check.

  7. 7. When will Jainam Ferro Alloys IPO list?

    The Jainam Ferro Alloys IPO will list on Friday, October 8, 2021, at NSE SME.