Storage Technologies BSE SME IPO review (May apply)

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Review By Dilip Davda on April 25, 2024

•    The company is engaged in to storage racking systems manufacturing and installations.
•    After inconsistency in its bottom lines from FY21 to FY23, it marked bumper profits for 7M-FY24 which not only raised eyebrows, but also about its sustainability.
•    Based on its FY24 annualized super earnings, the issue appears fully priced, but based on its FY23 earnings, its exorbitantly priced. 
•    The company has orders worth Rs. 21+ Cr. as of April 01, 2024.
•    Well-informed/cash surplus investors may park funds for the medium term. 

ABOUT COMPANY:
Storage Technologies & Automation Ltd. (STAL) is engaged into storage racking system. It specializes in design, manufacturing, installation services of metal storage racks, automated warehouses and other storage solutions. Its range of products and services demonstrates their commitment to providing innovative, efficient solutions for diverse warehousing needs, catering to a wide range of industries each with its own specific storage and logistical requirements, which includes oil & gas, automotive components & aerospace, food & beverages and cold storage, pharmaceutical, textile, retail, FMCG and others.

STAL is a customer-centric business driven by a focus on continuing innovation and operational efficiency. The company offers its clients with a wide variety of display and storage racks for commercial as well as industrial purposes. These are manufactured using qualitative raw materials. This helps in ensuring the durability and optimum strength of the finished products. It also uses different grades of Mild steel (Hot rolled coils, cold rolled coils, Galvanized steel coils, PPGI coils, pipes and structural sections), powder for powder coating, Epoxy, Enamel paints and plastic for packaging as raw material.

As an ISO 9001:2015 certified storage solution manufacturing company, its commitment to quality is evident. STAL's expansive infrastructure, spanning approximately 56,250 square feet in Singanayakanahalli, Yelahanka Hobli, Bangalore-560064, Karnataka and approximately 56,250 square feet of storage facility supports a streamlined manufacturing process. It carries out product designing, manufacturing, quality checking, packaging, storing and delivery processes in various specialized segments of its infrastructure. All procedures are strictly monitored by company's experienced team of quality controllers.

Its manufacturing process, combined with competitive strengths and strategic business approaches, positions it to meet the evolving needs of clients effectively. The company is dedicated to innovation, quality, and providing economically feasible solutions that don't just meet but exceed clients' expectations.

As of April 01, 2024, the total order book value of the Company was Rs. 21.36 cr. As of October 31, 2023, it had 166 employees on its payroll and 94 contract labourers.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3840000 equity shares of Rs. 10 each to mobilize Rs. 29.95 cr. at the upper cap. It has announced a price band of Rs. 73.00 - Rs. 78.00 per share. The issue opens for subscription on April 30, 2024, and will close on May 03, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.91% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 27.50 cr. for working capital, and the rest for general corporate purposes. 

The issue is solely lead managed by Oneview Corporate Advisors Pvt. Ltd., and Integrated Registry Management Services Pvt. Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

The company has issued entire equity capital at par value so far and has also issued bonus shares in the ratio of 2 for 1 in March 2022, and 2 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 1.11 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.00 cr. will stand enhanced to Rs. 12.84 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 100.15 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit/ - (loss) of Rs. 48.52 cr. / Rs. 1.22 cr. (FY21), Rs. 69.90 cr. / Rs. - (0.21) cr. (FY22), and Rs. 81.37 cr. / Rs. 0.61 cr. (FY23). For 7M of FY24 ended on October 31, 2023, it earned a net profit of Rs. 3.59 cr. on a total revenue of Rs. 53.17 cr. Thus a sudden boost in its bottom lines for 7M-FY24 appears to be a window dressing to pave the way for fancy valuations. Before these period, from FY21 to FY23, it posted growth in its top lines but bottom lines marked inconsistency and in particular it incurred loss for FY22.

For the last three fiscals, it has reported an average EPS of Rs. 1.24, and an average RONW of 6.29%. The issue is priced at a P/BV of 2.45 based on its NAV of Rs. 31.78 as of October 31, 2023, and at a P/BV of 2.01 based on its post-IPO NAV of Rs. 38.75 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 16.32. Based on FY23 earnings, the P/E stands at 165.96. Thus the issue is aggressively priced. The company is operating in a highly competitive and fragmented segment and may not sustain the margins posted for 7M of FY24.

For the reported periods, the company has posted PAT margins of 2.44% (FY21), - (0.29) % (FY22), 0.59% (FY23), 6.78% (7M-FY24), and RoCE margins of 22.09%, 4.02%, 13.76%, 22.52% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Alphalogic Ind. as their listed peers. It is trading at a P/E of 100.47 (as of April 25, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Oneview Capital in the last three fiscals (including the ongoing one), out of the last 2 listings, both listed with premiums ranging from 20% to 90% on the date of listing. 

However, as per IPO price band ad, the merchant banker has handled 50 IPOs so far, out of which 12 IPOs opened below the issue price on listing day, while as per offer document, it has handled 3 IPOs with the ongoing one. (As clarified by Oneview management, the old name - Guiness Corporate Advisor as Merchant Banker Category I was changed to Oneview Corporate Advisor as per SEBI norms and got approval from SEBI with incorporation of new name in the Merchant Banking licence no. INM000011930 and thus the old mandates linked to new name to take a tally to 50 IPOs so far).

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