SM Auto BSE SME IPO review (Avoid)

Review By Dilip Davda on Feb 26, 2020

•    SASL is in the manufacturing of sheet metal auto components.
•    Last the three fiscal it has posted erratic bottom lines.
•    Super profits in pre-IPO year raise concern.
•    The issue is exorbitantly priced around 300 PE.
•    Lead Manager has an average track record.
 

ABOUT COMPANY:
SM Auto Stamping Ltd. (SASL) is one of the auto-component manufacturers located in Nashik catering to the sheet metal components and sub-assemblies requirements of automobile parts/equipment manufacturers. Its range of product primarily covers sheet metal pressed components for clutches, brakes, engine mountings, chassis, shaft drive, body trims, bearings etc. which are used in passenger cars, commercial vehicles and tractors. Other products such as deep drawn components and control panel components also find application in the electrical equipment industry.

SASL has three manufacturing units, all ideally located at Nashik, Maharashtra on leasehold industrial plots of total size admeasuring to over 5000 sq. mtrs. All three units comply with the IATF 16949:2016 standards. Apart from manufacturing, the company also provides job work services in respect of blanking and forming process on metal components. Some of its reputed customers include JBM Auto Ltd., SKF India Ltd., Mahindra CIE Automotive Ltd., Haldex India Pvt Ltd, Reliable Autotech Private Limited and ABB India Ltd. to whom SASL has supplied its products in F.Y. 2018-19 and stub period Apr.'19 - Sept'19.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 5.00 cr.) and general corpus fund needs (Rs. 0.90 cr.),  SASL is coming out with a maiden IPO of 3840000 equity shares of Rs. 10 each at a fixed price of Rs. 18 per share to mobilize Rs.6.91 cr. The issue opens for subscription on 03.03.20 and will close on 05.03.20. Minimum application is to be made for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.88% of the post issue paid-up capital of the company. This issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also acting as a market maker for this issue. SASL is spending Rs. 1.01 cr. for the entire IPO process. This indicates that the issue is fully structured.

Having issued/converted initial equity at par, SASL also issued bonus shares in the ratio of 7 for 1 in September 2019. The average cost of acquisition of shares by the promoters is Rs. 1.25 and Rs. 10.00 per share. SASL's current paid-up equity capital of Rs. 10.45 cr. will stand enhanced to Rs. 14.29 cr. post this issue.  Post this issue, SASL is looking for a market cap of Rs. 25.72 cr.

FINANCIAL PERFORMANCE:
For the last three fiscals, SASL has posted turnover/net profits of Rs. 53.36 cr. / Rs. - (1.77 cr.) (FY17), Rs. 65.90 cr. / Rs. 0.74 cr. (FY18) and Rs. 76.30 cr. / Rs. 3.07 cr. (FY19). For the first half of FY20, it has earned a net profit of Rs. 0.04 cr. on a turnover of Rs. 32.22 cr. Thus it has shown erratic levels in bottom lines. The sudden jump in the bottom line for FY19 i.e. pre-IPO year appears window dressings.

SASL has posted an average EPS of Rs. 1.26 and an average RoNW of 11.37% for the last three fiscals. The issue is priced at a P/BV of 1.67 based on its NAV of Rs. 10.77 as on 30.09.19 and at a P/BV of 1.42 based on post issue NAV of Rs. 12.71. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 300 against industry composite of 67 P/E, making it a costly bet.

COMPARISION WITH LISTED PEERS:
As per offer documents, SASL has shown Omax Autos, Rasandik Engg and Autoline Ind as its listed peers. They are currently trading at a P/Es of around 5.72, 0.0 and 0.0 (as on 26.02.20).  However, they are not at all comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 27th mandate from its stable in the last three fiscals (including the ongoing one). Out of last 10 listings, one opened at discount, three at par and the rest with a premium ranging from 0.04% to 6.56% on the day of listing. Thus it has average track records.


Conclusion / Investment Strategy

SASL has posted erratic financial performance. Coffers are empty as they have issued bonus issue. New investors will have a long wait for rewards. The issue is priced exorbitantly. There is no harm in giving this issue a miss.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Feb 26, 2020

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

SM Auto IPO FAQs

  1. 1. Why SM Auto IPO?

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

  2. 2. How is SM Auto IPO?

    Read the SM Auto IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. SM Auto IPO what should investors do?

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

  4. 4. Is SM Auto IPO good?

    Our recommendation for SM Auto IPO is to avoid.

  5. 5. Is SM Auto IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the SM Auto IPO.

  6. 6. When will SM Auto IPO allotment status?

    The SM Auto IPO allotment status will be available on or around Mar 11, 2020. The allotted shares will be credited in demat account by Mar 13, 2020. Visit SM Auto IPO allotment status to check.

  7. 7. When will SM Auto IPO list?

    The SM Auto IPO will list on Monday, March 16, 2020, at BSE SME.








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