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Markolines Traffic BSE SME IPO review (May apply)

Review By Dilip Davda on Sep 11, 2021

•    MTCL is engaged in highway operations and maintenance servicing. 
•    It suffered a setback for FY 21 following the pandemic.
•    At prima facie issue is aggressively priced.
•    It has few prestigious orders on hand worth Rs. 276 cr. 

ABOUT COMPANY:
Markolines Traffic Controls Ltd. (MTCL) is a Highway Operations & Maintenance (O&M) Service providing company, thriving to make Highway Operations & Maintenance cost-effective and easier with the help of Innovation, Technology & out-of-the-box solutions. 

Its principal business operations are broadly divided into three categories: i) Highway Operations under which we provide services like Toll operations, Route Patrolling and Incident management; ii) Highway Maintenance under which MTCL provides services like Routine Maintenance, Preventive Maintenance and Major Maintenance & Repairs (MMR); iii) Specialized Maintenance Services under which it provides services which enhance the life and quality of the road, these are Micro-surfacing (MS), Base / Subbase Stabilization (FDR) and Cold In-Place Recycling (CIPR).

MTCL that was primarily in the business of road marking envisaged the opportunity & ventured into the current business activity Operation and maintenance of these infrastructure projects in 2009. MTCL has also ventured into Micro-surfacing of roads including cold in-place recycling methods. 

Though as of July 31, 2021, the Company has an Order Book of Rs. 276.07 cr. as clarified by the management, it may not be representative of the company's future results and its actual income may be significantly less than the estimates reflected in the Order Book, which could adversely affect results of operations. This lacks the self-confidence of promoters about future trends. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for prepayment/repayment of certain debts (Rs. 3.80 cr.), funding of working capital (Rs. 23.20 cr.) and general corpus fund (Rs. 9.00 cr.), MTCL is coming out with a maiden issue of 5128000 equity shares of Rs. 10 each at a fixed price of Rs. 78 per share to mobilize Rs. 40 crores. The issue opens for subscription on September 15, 2021, and will close on September 20, 2021. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.84% of the post issue paid-up capital of the company. MTCL will spend Rs. 4.00 cr. for this IPO process. This indicates a fully structured process for this issue. 

The issue is solely lead managed by Gretex Corporate Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Gretex Share Broking Pvt. Ltd. will be the market maker for this issue. 

The company has so far issued entire capital at par value and has also issued bonus shares in the ratio of 5 for 1 in February 2006 and 15 for 1 in August 21. There is some mismatch in the current paid-up equity capital of the company as on the date of filing of draft and final prospectus (Refer page 53 of offer document). The average cost of acquisition of shares by the promoters is Rs. 0.57 and Rs. 0.63 per share. 

Post issue, company's current paid-up equity capital of Rs. 13.98 cr. to Rs. 19.11 cr. post this issue. At the issue price, the company is looking for a market cap of Rs. 149.04 cr. 

FINANCIAL PERFORMANCE:
For the last three fiscals, MTCL has posted revenue/net profits of Rs. 73.49 cr. / Rs. 2.52 cr. (FY19), Rs. 171.55 cr. / Rs. 7.19 cr. (FY20) and Rs. 157.97 cr. / Rs. 4.28 cr. (FY21). The company has posted inconsistencies in its top and bottom lines. Clarifying on this, management said that due to pandemic, it suffered a setback in top line for FY21, but it has not defaulted on any staff welfare and business payment commitments and thus took a hit on its bottom lines. 

The company has posted an average EPS of Rs. 3.54 and an average RoNW of 23.96% for the last three fiscals. The issue is priced at a P/BV of 4.48 based on its NAV of Rs. 17.42 as of March 31, 2021, and at a P/BV of 2.32 based on its post-issue NAV of Rs. 33.68. 

If we attribute its FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of 34.82 and thus issue appears aggressively priced. 

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

DIVIDEND POLICY:
The company has no formal dividend policy in place and has not paid any dividends so far. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

MARCHANT BANKER'S TRACK RECORDS:
As per the offer document, this is the 14th mandate from Gretex Corporate in the last four fiscals including the ongoing one. It has shown data till March 31, 2021. After that, it brought a mandate of PlatinumOne in the first week of September 2021, which will get listed soon. Out of the last 10 listings, 1 opened at a discount and the remaining opened with premiums ranging from 0.06% to 7.96% on the day of listings.


Conclusion / Investment Strategy

At prima facie, the issue is aggressively priced based on FY21 performance. However, management is confident considering orders on hand worth Rs. 276 cr. and many more in pipelines. Rising infrastructural development spending augurs well for this company. Its equity base post-IPO is indicative of early migration to main board. Keeping all these in mind, risk taker/cash surplus investors may consider investment with a long term perspective.

Review By Dilip Davda on Sep 11, 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

Markolines Traffic Controls IPO FAQs

  1. 1. Why Markolines Traffic Controls IPO?

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

  2. 2. How is Markolines Traffic Controls IPO?

    Read the Markolines Traffic Controls IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Markolines Traffic Controls IPO what should investors do?

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

  4. 4. Is Markolines Traffic Controls IPO good?

    Our recommendation for Markolines Traffic Controls IPO is to subscribe for long term.

  5. 5. Is Markolines Traffic Controls IPO worth Investing?

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

  6. 6. When will Markolines Traffic Controls IPO allotment status?

    The Markolines Traffic Controls IPO allotment status will be available on or around Sep 23, 2021. The allotted shares will be credited in demat account by Sep 27, 2021. Visit Markolines Traffic Controls IPO allotment status to check.

  7. 7. When will Markolines Traffic Controls IPO list?

    The Markolines Traffic Controls IPO will list on Monday, September 27, 2021, at BSE SME.