Urban Enviro NSE SME IPO review (May apply)

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Review By Dilip Davda on June 8, 2023

•    UEWML is one of the leading players in MSW management services.
•    Its portfolio is in expansion mode with over 39 ongoing projects.
•    It has bright prospects ahead with rising awareness under "Swatch Bharat Abhiyan".
•    Based on its financial performance so far, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park funds for medium to long-term rewards.

ABOUT COMPANY:
Urban Enviro Waster Management Ltd. (UEWML) is engaged in Indian MSW (Municipal Solid Waste) management industry providing MSW services which include solid waste collection, transportation, segregation of waste and processing and disposal services across the Cities in Gujarat, Rajasthan, Madhya Pradesh and Maharashtra, primarily catering to local municipalities. It partners with different local bodies and serves to manage and reduce waste at each stage from collection to disposal.

UEWML's "Solid Waste" business is operated and managed locally that provides collection, transfer, and disposal services. It also carries on the business of providing manpower like staff, workers, and labours skilled/unskilled required by various industries and organizations. The company primarily undertakes (i) MSW projects which involve the door-to-door collection of MSW from households, slums, commercial establishments and other bulk-waste generators (community bins) from a designated area through primary collection vehicles like compactors, dumper placers and tippers and transportation of these materials, to the processing facility, transfer station or a disposal site.; (ii) MSW processing projects which involve sorting and segregating the MSW, followed by composting, as required; and (iii) Street sweeping projects which involve deploying sweeping brooms, manpower, maintenance, consumables, disposal of the waste and any other items required for completion of the cleaning operation of the designated areas. 

Its portfolio of 39 ongoing projects as on May 26, 2023, comprised MSW projects, MSW processing projects and sweeping projects. It is currently undertaking projects for Saoner Municipal Council, Mul Municipal Corporation, Jaipur Nagar Nigam, Deori Municipal Council, Bahulgaon Municipal Council, Gadchandur Municipal Council, Nagpur Municipal Corporation ("NMC"), Jaipur Municipal Corporation ("JMC"), Vadodara Municipal Corporation, Ahmedabad Municipal Corporation and Ankleshwar Nagarpalika.

As of May 26, 2023, UEWML had 428 vehicles of different sizes and types to meet the requirements of its operations. Its employees tally as of the said date was 2550 headcounts. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of 920000 fresh equity share issue (worth Rs. 9.20 cr.) and an Offer for Sale of 222400 shares (worth Rs. 2.22 cr.) thus overall 1142400 shares with a fixed price offer at a price of Rs. 100.00 per share to mobilize Rs. 11.42 cr. The issue opens for subscription on June 12, 2023, and will close on June 14, 2023. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.38% of the post-IPO paid-up capital of the company. 

UEWML will spend Rs. 0.80 cr. for the IPO process and from the net proceeds of the fresh equity issue, it will utilize Rs. 2.10 cr. for repayment of certain borrowings, Rs. 4.47 cr. for working capital, and Rs. 1.83 cr. for general corporate purposes.  

Pantomath Capital Advisors Pvt. Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. Surprisingly this IPO is underwritten by Asnani Stock Brokers Pvt. Ltd. (50%) and Nirman Share Broking Pvt. Ltd. (50%). Asnani Stock Brokers Pvt. Ltd. is also the market maker, jointly with Nikunj Stock Brokers Ltd. Perhaps this is the first such IPO where we have two market makers and no underwriting by the Lead Manager. 

The company has issued initial equity shares at par so far and has also issued bonus shares in the ratio of 340 for 1 in October 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.47, and Rs. 14.66 per share. 

Post-IPO, UEWML's current paid-up equity capital of Rs. 3.41 cr. will stand enhanced to Rs. 4.33 cr. The company is looking for a market cap of Rs. 43.30 cr. based on the IPO pricing. The small equity base post-IPO indicates longer gestation for migration to the mainboard.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, as per the restated financial statement, UEWML has posted a turnover/net profit of Rs. 12.80 cr. / Rs. 0.75 cr. (FY20), Rs, 15.88 cr. / Rs. 0.83 cr. (FY21), Rs. 19.77 cr. / Rs. 1.29 cr. (FY22). For 9M of FY23 ended on December 31, 2022, it earned a net profit of Rs. 1.06 cr. on a turnover of Rs. 26.47 cr. Its debt-equity ratio of 2.86 as of December 31, 2022, raises concern. For the last three fiscals, its average Net Profit Margins remained around 6% 

For the last three fiscals, the company has reported an average EPS of Rs. 3.07 and an average RoNW of 47.01%. The issue is priced at a P/BV of xx based on its NAV of Rs. 12.42 (not annualized) as of December 31, 2022. The offer document is missing data on its post-IPO NAV. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 30.49. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Antony Waste Handling as their listed peer. It is currently trading at a P/E of 56.67 (as of June 08, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Pantomath Capital in the last three fiscals (including the ongoing one). Out of the last 4 listings, all are listed at premiums ranging from 5.00% to 30.77% on the listing date. 

Urban Enviro Waste Management IPO FAQs