Ranjeet Mechatronics IPO Analysis

Review By Finception on Sep 11, 2018

Ranjeet Mechatronics is in the business of providing end to end solutions for security and firefighting requirements. In 2009, they began their journey as a fire fighting solution provider when installation of fire pumps & fire engines was made mandatory in high rise buildings, mall and industries by the government. Their services range from fire hydrant systems to Gas suppression devices to CCTV systems. Investors must note that the company does not manufacture their products in-house.

So how are they doing as a business?

  1. There is a sudden drop in revenues in FY17 and revenues remained flat during FY18. The company stated that the drop was mainly due to a shrinking order book.
  2. The bottom-line and the operating margin has increased substantially from the past 4 years primarily due to decrease in cost of goods sold.

FY

FY 18

FY 17

FY 16

FY 15

FY 14

Revenue(Cr)

17.7

17.6

25.25

23.61

10.63

PAT (Cr)

0.91

0.5

0.16

0.04

0.03

PAT Margin (%)

5.1

2.8

0.63

0.17

0.28

High Trade Receivables?

The company also has high trade receivables. In FY17, it accounted for almost 50% of its revenue while in FY18, it formed 30 % of the total revenue. Well, it is quite evident that the company recognizes revenue as soon as it wins a contract from a client w it takes some time for cash to enter the system. On average, the company took a total of 107 days to collect payments from its customers during FY18, albeit a significant improvement over 184 days it took to collect payment during FY17.

Particulars

FY 18

FY 17

FY 16

FY 15

FY 14

Revenue(Cr)

17.7

17.6

25.25

23.61

10.63

Trade receivable as % of Revenue

30

50

33

28

32

Point of Interest

An Interesting Transaction

The company carried out a very interesting transaction in FY18. Related party transactions between Ranjeet and Himgiri (a firm solely owned by the Promoter) increased by 10 times in one year.

  1. Ranjeet’s sales to Himgiri stands at about 6 Crores, about 34% of its total sales
  2. Ranjeet purchased 5.7 Crores worth of goods from Himgiri
  3. Over 91% of Himgiri’s income comes from sale of goods to Ranjeet
  4. Over 96% of Himgiri’s expenses are from purchase of products from Ranjeet
  5. Himgiri is a proprietorship solely owned by the promoter
  6. If you remove this particular transaction from the income statement, the company’s top line reduces to about 12 Cr.

Particulars( in Cr)

FY18

FY17

FY16

FY15

Sales to Himgiri(% of revenue)

6(34.4%)

0.54(3%)

-

-

Purchases from Himgiri(% of Total Expense)

5.78(34%)

0.84(6%)

-

-

Why IPO?

The company is planning to go for to fulfil two objectives:

  1. The company wants to utilize 75 % of the total proceeds i.e. 3.12 Crore towards meeting its working capital requirement.
  2. The remaining 25 % of the total proceeds i.e. 1 crore will be used for general corporate purpose

Particulars

Amount Raised through IPO (Cr)

Working Capital Requirements

3.12

General Corporate Purpose

1.00

Total

4.12

What does the Future hold?

Based on annualized earnings asking price of Rs 25 translates to a PE of about 18 post issue. Considering the declining top line and receding order book, the company faces an uphill battle.

We here at Finception, wish the company all the best in its future endeavour.

The review has been compiled by Pawan Kumar- NISM Certified and cofounder, Finception.


Conclusion / Investment Strategy

Based on annualized earnings asking price of Rs 25 translates to a PE of about 18 post issue. Considering the declining top line and receding order book, the company faces an uphill battle.

 

Review By Finception on Sep 11, 2018

Review Author

Dilip Davda, a freelance journalist

Finception

Finception is a startup dedicated to simplifying stocks through compelling storytelling. Finception aggregates, analyses and filters information from multiple sources and creates compelling narratives about publicly listed companies in an easy to understand language without financial jargons. The startup is the brainchild of 3 IIM Ahmedabad alumnus and they are currently based out of Ahmedabad.

Email: support@finception.in

Web: https://finception.in/

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