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Review By Dilip Davda on January 7, 2024

•    NSML is having diverse business in automotive and agricultural sectors.
•    Its customers list includes renowned corporates in domestic and global markets. 
•    It posted fluctuating top lines for the reported periods. 
•    The sudden boost in bottom lines from FY23 onwards raise eyebrows. 
•    Investors may park funds for the medium to long term. 

ABOUT COMPANY:
New Swan Multitech Ltd. (NSML) is an engineering-led manufacturer of (i) complex and critical precision engineered components and parts used in automotive sector ("auto components") and (ii) agricultural farm machineries designed to meet the diverse needs of modern farming ("agricultural implements"). Within the automotive sector, it manufactures, procures and supplies a range of precision machined tubular assemblies, welded assemblies, precision brackets and sheet metal parts. 

Its wide range of offerings in this segment includes link assembly engine hangers, hinge body covers, front cover stay components, seat catch components, fuel filler cap components, main stand complete assemblies, front fender stay assemblies, engine guard plates, rear brake arm assemblies, separator breather, cable guide assemblies, battery tray components and many other parts, that are critical for the two-wheeler vehicles and various type of brackets such as cooling recovery reservoir brackets, exhaust tailpipe brackets, fuse block brackets, floor panel brackets, air cleaner inlet hose brackets for the passenger car vehicles.

Within the agricultural implements sector, it designs, manufactures and supplies a comprehensive range of agricultural implements that cater to different aspects of farming such as soil preparation, sowing, crop management, harvesting and crop residue management. NSML's wide range of offering in this segment includes various type of rotovators, seeders, super seeders, weeders, potato planter, potato digger, fertilizer spreader, mulcher, puddler, laser land leveller, disc ploughs and many other agricultural implements. 

For Fiscal 2023, its 60.70% revenue came from auto components segment and 37.13% from agricultural implements segment. It also procures certain of the auto-components in the finished and unfinished form (bought out parts) from the Promoter Group entity, M/s New Swan Enterprises which includes fuel cap & bracket for seat latch, stay stopper rubber, body cover, plate engine guards, side stand and various other items.

As of the date of this Red Herring Prospectus, its product portfolio has over 300 SKU's of agricultural implements and auto components. It also owns 5 design registrations relating to agricultural implements i.e. Mulcher, power weeder, crop planter, potato harvester and potato planter which are registered with the Patent Office, Government of India. In automotive segment, the company supplies most of its products directly to OEMs in finished (machined) condition. In the two-wheeler vertical, it has relationship spanning over 6 years with Honda Motorcycle and Scooter India ("HMSI"), which is largest customer in terms of revenue for Fiscal 2023, over 3 years with MG Motors to which it supplies passenger car components and over 3 years with Mahindra & Mahindra to which it supplies agricultural implements. 

Within the domain of agricultural implements, its product distribution encompasses an extensive network of over 200 dealers, covering 11 states in India. NSML's reach also extends to supplying agricultural implements to notable OEMs such as Mahindra & Mahindra, John Deere India Pvt. Ltd. etc. It also exports agricultural implements to countries like Mauritius, Russia, Kazakhstan, South Africa, Sudan and Nepal. As of October 31, 2023, it had 184 employees on its payroll. It also engages contract labours as and when needed. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 5016000 equity shares of Rs. 10 each to mobilize Rs. 33.11 cr. at the upper cap. It has announced a price band of Rs. 62 - Rs. 66 per share. The issue opens for subscription on January 11, 2024, and will close on January 15, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.38% of the post-IPO paid-up equity capital of the company. From the net proceeds, it will utilize Rs. 3.90 cr. for capital expenditure on certain machineries, Rs. 8.00 cr. for repayment of certain borrowings Rs. 15.50 cr. for working capital and the rest for general corporate purpose.  

The joint Book Running Lead Managers to this issue are Hem Securities Ltd. and Share India Capital Services Pvt. Ltd. While Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

The company issued entire equity shares at par value so far and has also issued bonus shares in the ratio of 3 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 2.50 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 14.00 cr. will stand enhanced to Rs. 19.02 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 125.51 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total revenue/net profit of Rs. 149.61 cr. / Rs. 3.43 cr. (FY21), Rs. 145.52 cr. / Rs. 3.63 cr. (FY22), Rs. 151.42 cr. / Rs. 9.92 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 4.98 cr. on a total revenue of Rs., 77.88 cr. The company marked inconsistency in its top lines for the reported periods.

For the last three fiscals, the company posted an average EPS of Rs. 4.82 and an average RoNW of 26.23%. The issue is priced at a P/BV of 2.66 based on its NAV of Rs. 24.85 as of September 30, 2023, and at a P/BV of 1.85 based on its post-IPO NAV of Rs. 35.71 per share (at the upper cap).

If we attribute annualized FY24 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 12.60. Thus the issue appears reasonably priced. 

For the reported periods, it has posted PAT margins of 2.29% (FY21), 2.50% (FY22), 6.56% (FY23), 6.39% (H1-FY24), and RoCE margins of 12.56%, 12.64%, 24.86%, 11.54% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for any 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 Sansera Engg., Endurance Techno and JBM Auto as their listed peers. They are trading at a P/E of 35.53, 63.25 and 232.82 (as of January 05, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 38th mandate from Hem Securities in the last three fiscals. Out of the last 10 listings, all opened with premiums ranging from 8.57% to 125% on the date of listing.

This is the 7th mandate from Share India Capital in the last three fiscals. Out of the last 6 listings, 3 opened at par and the rest with premiums ranging from 50.82 to 120% on the date of listing.

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