Powerful Technologies NSE SME IPO review (May apply)

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Review By Dilip Davda on August 6, 2018

•    Company operates in highly competitive field
•    Lot of cheap Chinese products are available
•    Superb profits for FY18 raises eyebrows
•    Two LMs shown different valuation for the same size of issue
•    Sustainability of profits in cut throat competition  raises concern.

Two Lead Managers Shows Different Valuation

In Powerful Technologies Ltd. (PTL) IPO process, something interesting has happened. It is worth mentioning for the information of investors.

• The company started its IPO process in March 2018 when Lead Manager (LM) Sarthi Capital Advisors Pvt. Ltd. filed draft prospectus with NSE on 15th March 2018 for issue of 664,000 equity shares of Rs. 10 each at a fixed price of Rs. 175 per share to mobilize Rs. 11.62 crore with dilution of 26.50% shares. Bigshare Services Pvt. Ltd. appointed registrar to the issue.
• On 30th May 2018 revised draft prospectus was filed with NSE for issue of 2655000 equity shares at a fixed price of Rs. 43 per share to mobilize Rs. 11.42 cr. LM and Registrar were the same. But when we are checking for the final draft prospectus filed on 27th June 2018, the issue size remain same but the asking price was raised to Rs. 51 per share for fund mobilization of Rs. 13.55 crore.
• This time while registrar remained the same, LM was changed. Last draft prospectus is filed by Finshore Management Services Pvt. Ltd.
• At the time of first draft prospectus PTL had issued bonus shares in the ratio of 6 for 1 in January 2018 and also issued fresh 371429 fresh equity shares at a price of Rs. 175 per share in the same month taking the total paid up equity as on 25.01.18 to Rs. 1.84 crore.
• In May 2018 it again issued bonus shares in the ratio of 3 for 1 that took the paid up equity to Rs. 7.37 crore and perhaps due to this the price reduction was considered by old LM for IPO process at Rs. 43 per share at the first instance that now stands revised to Rs. 51 per share by new LM. 
• In first two drafts offer documents Choice Equity Broking Pvt. Ltd. were the market maker and for the third draft offer document, no name was indicated for market maker.
• Financial data for second and third draft offer documents remained same.
• As per final prospectus, it has now appointed Share India Securities Ltd. as its market maker. Thus LM as well as market makers have changed for this IPO.

About the company

Powerful Technologies Ltd. (PTL) is formed to focus exclusively on consumer electronics products like LED TVs & mobile power banks and IT hardware products like LED monitors. Company is into manufacturing of LED TV, LED monitors and mobile power banks. Its first shipment for mobile adapter has recently been delivered to distributors under 'Powereye' brand. Company’s manufacturing unit is set up in Noida, which has been a hub for IT and consumer electronics products.  Initially, it started selling products under brand names 'Powereye' and 'Lappy Master' and also used to make power banks for other brands. After getting approval from American brands Kodak and Polaroid in year 2016-17 to manufacturer mobile power banks and LED TVs respectively, it scaled up its volumes over last one year from these brands. The company is authorized licensee for Polariod LED TVs and LED Monitors and Kodak Power banks in India. PTL is also trading in mobile power banks and LED TVs as when demand is more than supply.

Capital history/Issue details

To part finance its working capital and general corpus fund needs, PTL is coming out with a maiden IPO of 2656000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 13.55 crore. Issue opens for subscription on 09.08.18 and will close on 14.08.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge.

Issue is lead managed by Finshore Management Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue.

Issue constitutes 26.50% of the post issue paid up capital of the company. Having raised initial equity at par, it raised further equity in the price range of Rs. 50 and Rs. 175 per share between March 2016 and January 2018. It has also issued bonus shares in the ratio of 6 for 1 in January 2018 and 3 for 1 in May 2018.

Post issue, PTL’s current paid up capital of Rs. 7.37 crore will stand enhanced to Rs. 10.02 crore. Average cost of acquisition of shares by the promoters is Rs. 1.72 per share.

Financial performance

On performance front, for last three fiscals, PTL has posted turnover/net profits of Rs. 24.97 cr. / Rs. 0.18 cr. (FY16), Rs. 35.61 cr. / Rs. 0.41 cr. (FY17) and Rs. 62.62 cr. / Rs. 4.50 cr. (FY18). Thus it posted many fold jumps in net profit which is astonishing and raising concern as the field it operates is highly competitive one.

For last three fiscals, it has posted an average EPS of Rs. 4.09 and average RoNW of 29.03% on paid up equity base of Rs. 1.84 crore as on 31.03.18. (This is now Rs. 7.37 cr. and will stand enhanced to Rs. 10.02 cr. post issue).

Asking price is at a P/BV of 2.98 on the basis of its NAV of Rs. 17.11 as on 31.03.18 and at a P/BV of 1.95 on its post issue NAV of Rs. 26.09. If we attribute latest earnings on fully diluted equity post issue, then asking price is at a P/E of around 11 plus and thus appears reasonable. As per offer documents, it has no listed peers to compare with.

Merchant banker’s track record

On merchant banker’s front, this is the 3rd mandate from its stable and the only listing took place so far opened at a premium of 0.02% on the day of listing.

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