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Pavna Ind NSE SME IPO review (May apply)

Review By Dilip Davda on Feb 19, 2021

•    The company is engaged in auto component manufacturing and marketing.
•    PIL also does the marketing of products from its subsidiaries engaged in similar trade.
•    It has suffered a heavy setback during the pandemic period for the first half of FY21.
•    Lead manager has an average track record.

ABOUT COMPANY:
Pavna Industries Ltd. (PIL) along with its subsidiaries is engaged in the business of manufacturing automotive parts, providing solutions for automobile applications and serving automobile & other applications worldwide. Its focus is manufacturing quality & customer-oriented components, catering to Original Equipment Manufacturers (OEM) & providing automotive aftermarket solutions.

PIL has a diversified product portfolio, which consists of high-quality reliable parts such as Ignition Switches, Fuel Tank Caps, Latches, Auto Locks, Handles, Switches, Oil Pump, Carburetor, Throttle Body, Fuel Cocks, Injection System, Casting Components etc. We also provide aftermarket sales and services. Its aftermarket products include products manufactured such as filters, clutch plates, bearings, wiper blades and brake shoes.

The company has ultra-modern manufacturing plants in India, located in Aligarh (Uttar Pradesh), Aurangabad (Maharashtra), & Pantnagar (Uttarakhand). Its facilities are located in key auto-clusters and some of the facilities are in close proximity to the plants of OEM customers. The proximity of facilities to the plants of OEM customers also facilitates greater interaction with customers, thereby enabling it to respond to their requirements in a timely manner.

As of March 31, 2020, the company had a total workforce of 737 full-time employees (other than Directors) (including skilled, semi-skilled and unskilled employees).

Since the company engaged in manufacturing automotive components, its products were not categorized under the 'essential goods' and hence manufacturing facilities were shut down during this Pandemic. In view of the nationwide lockdown announced by the Government of India to control the spread of COVID-19, PIL's business operations were temporarily disrupted from March 24, 2020.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for partial repayment of loans from promoters group (Rs. 13.00 cr.) and general corporate funds (Rs. 1.62 cr.) needs, PIL is coming out with a maiden Initial Public Offer (IPO) of 1800000 equity shares of Rs. 10 each (Fresh issue of 902400 shares and offer for sale of 897600 shares) at a fixed price of Rs. 165 per share to mobilize Rs. 29.70 cr. The issue opens for subscription on February 24, 2021, and will close on March 01, 2021. Minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.55% of the post issue paid-up capital of the company. PIL is spending Rs. 0.48 cr. for this issue process.

The issue is solely lead managed by Aryaman Financial Services Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is a Market Maker for this issue.

PIL's initial equity is issued at par, the company has also issued bonus shares in the ratio of 1 share for every 1 share held in June 2020. The average cost of acquisition of shares by the promoters is Rs. 4.01 and Rs. 9.35 per share.

Post issue, PIL's current paid-up equity capital of Rs. 5.19 cr. will stand enhanced to Rs. 6.09 cr. With the IPO pricing, the company is looking for a market cap of Rs. 100.49 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last fiscal, PIL has on a consolidated basis posted turnover/net profits of Rs. 179.83 cr. / Rs. 6.34 cr. (FY20). For the first half ended on September 30, 2020, it has earned a net profit of Rs. 0.83 cr. on a turnover of Rs. 68.08      cr.

On a standalone basis, for the last three fiscals, PIL has reported turnover/net profits of Rs. 106.78 cr. / Rs. 3.24 cr. (FY18), Rs. 137.98 cr. / Rs. 5.86 cr. (FY19) and Rs. 136.31 cr. / Rs.4.08 cr. (FY20). For the first half of the current fiscal ended on September 30, 2020, it has earned a net profit of Rs. 0.27 cr. on a turnover of Rs. 51.72 cr. Thus during the lockdown period, the company has suffered a severe setback in the top and bottom lines on consolidated as well as on a standalone basis.

For the last three fiscals, the company has posted an average EPS of Rs. 8.74 and an average RoNW of 20.68%. The issue is priced at a P/BV of 3.16 based on its consolidated Net Asset Value (NAV) of Rs. 52.24 and at a P/BV of 2.41 based on post issue NAV of Rs. 68.38.

If we annualize latest earnings and attribute it to fully diluted post issue equity, then asking price is at a P/E of around 60.4 (on a consolidated basis) and at a P/E of around 185+ (on a standalone basis). Thus the issue is exorbitantly priced against an industry average of 37.50 P/E. On the basis of FY20 earnings, the issue is priced at a P/E of 23.44 (on a consolidated basis) and at a P/E of 24.63 (on a standalone basis) respectively making it fully priced issue.  

COMPARISION WITH LISTED PEERS:
As per the offer documents, the company has shown Pritika Auto, Minda Corp, Sandhar Techno as its listed peers that are currently trading at a P/Es of around 57.25, 52.2 and 41.2 (as of 19.02.2021). However, they are truly not comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 25th mandate from its stable in last three fiscals (including the ongoing one). Out of last 10 listings, 2 opened at discount and the rest with a premium ranging from 0.06% to 2.16% on the day of listing. Thus the Lead Manager has average track records.


Conclusion / Investment Strategy

It has suffered a severe setback for the first half amidst lockdown due to corona pandemic all group companies are involved in the similar trades hence accounting adjustments poses a major concern. Outlook for the auto ancillaries appears bright based on the market reports. But based on current working, the asking price is very high. Longer IPO subscription period also raises eyebrows. Hence risk savvy-cash surplus investors may consider investment at their own risks.

Review By Dilip Davda on Feb 19, 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

Pavna Industries IPO FAQs

  1. 1. Why Pavna Industries IPO?

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

  2. 2. How is Pavna Industries IPO?

    Read the Pavna Industries IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Pavna Industries IPO what should investors do?

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

  4. 4. Is Pavna Industries IPO good?

    Our recommendation for Pavna Industries IPO is to subscribe for long term.

  5. 5. Is Pavna Industries IPO worth Investing?

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

  6. 6. When will Pavna Industries IPO allotment status?

    The Pavna Industries IPO allotment status will be available on or around Mar 4, 2021. The allotted shares will be credited in demat account by Mar 8, 2021. Visit Pavna Industries IPO allotment status to check.

  7. 7. When will Pavna Industries IPO list?

    The Pavna Industries IPO will list on Tuesday, March 9, 2021, at NSE SME.