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Review By Dilip Davda on November 6, 2023
• KCTL is in the business of castings and containers for all short of industries including railways.
• The company marked growth in its top lines, but quantum jump in bottom lines for the last 15 months raises eyebrows.
• Based on its FY24 annualized super earnings, the issue appears reasonably priced, but the sustainability of such margins going forward is a major concern.
• Well-informed investors may consider parking of moderate funds for the long-term rewards.
ABOUT COMPANY:
Kalyani Cast-Tech Ltd. (KCTL) that started with the business of castings and had MG Coupler components, CI Brake Blocks, Adapter for WEG4 Loco, Bearing Housing for Electrical Loco, Corner castings etc., to cater requirements of Indian Railways, mining industries, Cement industries, chemicals and fertilizers, power plants etc.
Post 2018, it also ventured in to business of manufacturing containers for railways. It manufactures wide product range of castings for all short of containers. The company adopted no-bake systems for moulding and with automatic sand plant. It is also involved in exports.
It aims to be one of the top design & manufacturing companies for steel, SG iron, cast iron components and manufacturing of ISO containers, development and manufacturing of special and customized containers. As of the date of filing this offer document, it had 138 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 2166000 equity shares of Rs. 10 each. It has announced a price band of Rs. 137 - Rs. 139per share and mulls raising Rs. 30.11 cr. at the upper cap. The issue opens for subscription on November 08, 2023 and will close on November 10, 2023. The minimum application to be made is for xxx shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.17% of the post-IPO paid-up equity capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 23.75 cr. for working capital and the rest for general corporate purpose.
After reserving 360000 shares (16.71%) for the market maker, the company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors.
The issue is solely lead managed by Gretex Corporate Services Ltd., while Bigshare Services Pvt. Ltd. is the registrar of the issue. GRETEX group's Gretex Share Broking Ltd. is the market maker for the company.
The company has issued entire equity share capital at par value so far. The average cost of acquisition of shares by the promoters is Rs. 10.00, Rs. 12.50, and Rs. 14.28 per share.
Post-IPO, KCTL's current paid-up equity capital of Rs. 5.02 cr. will stand enhanced to Rs. 7.18 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 99.81 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 11.35 cr. / Rs. 0.35 cr. (FY21), Rs. 49.47 cr. / Rs. 1.17 cr. (FY22), and Rs. 63.37 cr. 8.04 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 2.94 cr. on a total income of Rs. 24.68 cr.
For the last three fiscals, KCTL has reported an average EPS of Rs. 8.93 and an average RoNW of 35.70%. The issue is priced at a P/BV of 4.06 based on its NAV of Rs. 34.25 as of June 30, 2023. The IPO price band ad is missing its post-IPO NAV data.
If we annualize FY24 super earnings and attribute it to fully diluted post-IPO paid-up capital of the company, then the asking price is at a P/E of 8.49. Thus based on its recent super earnings, the issue appears reasonably priced, but sustainability of such margins raises concern.
The company has posted PAT margins of 3.16% (FY21), 2.37% (FY22), 12.70% (FY23), and 11.92% (Q1-FY24), and RoCE margins of 5.60%, 18.18%, 67.56% and 20.20% for the corresponding periods respectively. Quantum jump in margins for the last 15 months' period raises eyebrows and concern over the sustainability of such earnings going forward as their peers are witnessing very low margins with continued pressure amidst rising competition. These financial performance appears to be the window dressing with super performance in pre-IPO period.
According to the management, spurt in margins are attributed to their specialized containers that enjoys higher margins as well as on the eased commodity prices post covid, since their contracts are based on fix pricing policy for the term of orders. The company has orders worth Rs. 97 cr. on hand at present.
DIVIDEND POLICY:
The company has not declared any dividends for reported financial years. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Texmaco Rail and Titagarh Rail as their listed peers. They are trading at a P/E of 62.59 and 43.29 (as of November 06, 2023). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
This is the 17th mandate from Gretex Corporate in the last three fiscals. Out of the last 10 listings, 3 opened at discount, 1 and par and the rest with premiums ranging from 1.31% to 90% on the day of listing.
Review By Dilip Davda on November 6, 2023
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. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. 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 their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About 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.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Kalyani Cast Tech Ltd offers an early investment opportunity in Kalyani Cast Tech Ltd. A stock market investor can buy Kalyani Cast Tech IPO shares by applying in IPO before Kalyani Cast Tech Ltd shares get listed at the stock exchanges. An investor could invest in Kalyani Cast Tech IPO for short term listing gain or a long term.
Read the Kalyani Cast Tech IPO recommendations by the leading analyst and leading stock brokers.
Kalyani Cast Tech IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Kalyani Cast Tech IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Kalyani Cast Tech IPO is to subscribe for long term.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Kalyani Cast Tech IPO.
The Kalyani Cast Tech IPO allotment status will be available on or around November 13, 2023. The allotted shares will be credited in demat account by November 17, 2023. Visit Kalyani Cast Tech IPO allotment status to check.
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