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Shigan Quantum NSE SME IPO review (Avoid)

Review By Dilip Davda on Feb 25, 2022

•    SQTL is engaged in the manufacturing and marketing of alternate fuel systems.
•    After posting static margins for FY19 to FY21, it has posted a sudden boost.
•    Based on its super earnings in FY22 so far (IPO year), the issue is fully priced. 
•    The segment is crowded and fragmented and most competitive.
•    There is no harm in ignoring this IPO.

ABOUT COMPANY: 
Shigan Quantum Technologies Ltd. (SQTL) is engaged in the business of designing, developing and manufacturing varieties of Alternate Fuel Systems including CNG, LNG and Hydrogen Fuel Kit systems for OEMs and others. It manufactures Alternate Fuel Systems for heavy-duty vehicles, light-duty vehicles and off-highway applications.

Since April 2020, the Company has also ventured into manufacturing of Fire Detection & Alarm System and Fire Detection & Suppression System (FDAS &FDSS). The installed capacity of manufacturing of FDAS & FDSS is 36,000 nos. per annum, however, it has manufactured 671 nos. of FDAS & FDSS as of March 31, 2021.

The company sources critical technologies from MNC companies with whom it has a long term technology user agreement or manufacturing license. SQTL has entered into technology agreements with companies for developing exclusive products customized to its requirements. It enjoys exclusive manufacturing rights in India for these products after their development.

With the change in technologies, it has planned to acquire the Foreign Suppliers' expertise through Joint Venture or by outright purchase of their technologies and localize production of Gaseous Fuel Injection Technology systems. Such Gaseous Fuel Injection Technology systems will enable the Company to manufacture products that will meet the upcoming Emission norms thereby enhancing the performance of the vehicle.

SQTL is engaged in designing, optimizing, manufacturing, assembling, testing and kit integration of alternate fuel systems/kits for heavy/light-duty commercial vehicles and buses, power generation equipment and industrial equipment viz. forklifts etc. It aims to localize the components of Euro-VI CNG kits in India, which will help to reduce the cost of the total system.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for incremental working capital (Rs. 16.81 cr.), purchase of machinery (Rs. 3.95 cr.) and general corporate purpose (Rs. 1.00 cr.), SQTL is coming out with a maiden IPO of 4539000 shares of Rs. 10 each at a fixed price of Rs. 50 per share to mobilize Rs. 22.70 cr. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. The issue opens for subscription on February 28, 2022, and will close on March 03, 2022. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post issue paid-up capital of the company. It will spend Rs. 0.94 cr. for this IPO process. 

The issue is solely lead managed by Finshore Management Services Ltd., and KFin Technologies Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this company. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 41.50 per share in May 2019, and has also issued bonus shares in the ratio of 4 shares for 1 share held in September 2021. The average cost of acquisition of shares by the promoters is Rs. 00, Rs. 2.00, Rs. 6.00 and Rs. 16.67 per share. 

Post-IPO, SQTL's current paid-up equity capital of Rs. 12.68 cr. will stand enhanced to Rs. 17.22 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 86.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SQTL has posted turnover/net profits of Rs. 69.08 cr. / Rs. 2.66 cr. (FY19), Rs. 72.79 cr. / Rs. 2.92 cr. (FY20) and Rs. 96.02 cr. / Rs. 3.51 cr. (FY21). For the first five months of FY22 ended on August 31, 2021, it has earned a net profit of Rs. 2.89 cr. on a turnover of Rs. 64.40 cr.

For the last three fiscals, SQTL has posted an average EPS of Rs. 2.62 and an average RoNW of 23.12%. The issue is priced at a P/BV of 2.03 based on its post-IPO NAV of Rs. 24.66. The company has not given data of its NAV as of August 31, 2021. 

If we annualize FY22 earnings and attribute it to post IPO fully diluted equity, then the asking price is at a P/E of 12.41. Thus the issue is fully priced based on its super earnings for FY22 (IPO year) annualized earnings. Based on its FY21earnings, the issue is priced at a P/E of 24.50. 

COMPARISON WITH LISTED PEERS:
As per offer documents, SQTL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of Prospectus in absence of any dividend policy. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 22nd mandate from Finshore Management in the last four fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 3% to 93.4% on the day of listing. 

The higher return in the case of DJ Media (93.4%) is nothing but an eyewash as it has been posting lower circuits since listing and currently trading at a discount to offer price. It appears that no one could have made any luck with FPO shares allotted due to lower circuits with thin volumes since closer of FPO. Even the market price rigging took place with very thin volume before and around FPO issue time. To please the FPO investors it has also announced bonus shares in the ratio of 1 for 1 in the first week of February 2022. But this could not help it as its price kept sliding even after such a rosy announcement. It is the best case for regulators to make an in-depth study for the excellent market operations.


Conclusion / Investment Strategy

The company is operating in an overcrowded and highly fragmented and competitive field. After posting static margins, it posted super earnings for 5MFY22 i.e. IPO years. Based on this data, the issue appears fully priced and based on FY21 earnings, it is highly-priced. There is no harm in ignoring this issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Feb 25, 2022

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

Shigan Quantum Technologies IPO FAQs

  1. 1. Why Shigan Quantum Technologies IPO?

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

  2. 2. How is Shigan Quantum Technologies IPO?

    Read the Shigan Quantum Technologies IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Shigan Quantum Technologies IPO what should investors do?

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

  4. 4. Is Shigan Quantum Technologies IPO good?

    Our recommendation for Shigan Quantum Technologies IPO is to avoid.

  5. 5. Is Shigan Quantum Technologies IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Shigan Quantum Technologies IPO.

  6. 6. When will Shigan Quantum Technologies IPO allotment status?

    The Shigan Quantum Technologies IPO allotment status will be available on or around Mar 8, 2022. The allotted shares will be credited in demat account by Mar 10, 2022. Visit Shigan Quantum Technologies IPO allotment status to check.

  7. 7. When will Shigan Quantum Technologies IPO list?

    The Shigan Quantum Technologies IPO will list on Friday, March 11, 2022, at NSE SME.