Ratnaveer Precision Engineering IPO fully subscribed within an hour. Should you apply?

There are no peer companies that have product profiles similar to the company.

The initial public offering (IPO) of Ratnaveer Precision Engineering was fully subscribed within an hour of opening on September 4, with both high net-worth and retail investors bidding for the issue in droves.

By 11 am, the issue had been fully subscribed. Retail investors bid for 93,49,950 shares against their quota of 58,94,000 shares. The portion set aside for non-institutional investors (NIIs) was subscribed 0.97 times.

The Gujarat-based company is looking to raise Rs 165.03 crore from the issue at the upper price band. The IPO comprises a fresh issue of 1.38 crore shares, amounting to Rs 135.24 crore, and an offer-for-sale (OFS) of 30.4 lakh shares. The price band for the offer has been set at Rs 93-98 a share.

The firm will use the fresh issue proceeds for working capital requirements amounting to Rs 85 crore and general corporate purposes, while the OFS money will go to the selling shareholders.

The firm mopped up Rs 49.5 crore from six anchor investors, including Societe Generale, Sixteenth Street Asian Gems Fund, Saint Capital Fund, Coeus Global Opportunities Fund and Leading Light Fund VCC - The Triumph Fund, on September 1.

Follow our live blog for all the market action

The stainless steel product manufacturer, with four manufacturing units in Gujarat, makes finished sheets, washers, solar roofing hooks, pipes and tubes. Stainless steel is a value-added product with high corrosion-resistant properties.

There are no peer companies that have similar product profiles. The company’s P/E multiple at a higher price band, after adjusting for post-IPO fully diluted paid-up equity, comes out to 19.0x (to its FY23 EPS of Rs. 5.16), which seems fully priced with respect to its performance.

Only a handful of analysts are covering the issue.

The company's top and bottom lines have been growing at a respectable rate and it reported an operating margin in the single digits, analysts at Choice Broking said.

“Since the market in which the company operates is fragmented and where small and medium-sized unorganized players dominate, considering its growth outlook with the growing competition, we assign a ‘subscribe with caution’ rating for the issue,” they said.

Backed by an expansion of product portfolio, the company's revenue from operations increased at a CAGR of 17.3 percent from FY20 to FY23, with a 12.4 percent annual growth in FY23. EBITDA grew at a CAGR of 22.9 percent from FY20 to FY23.

Similarly, reported PAT showed a CAGR of 51.6 percent from FY20 to FY23, with a substantial 164.3 percent increase in FY23.

This is facilitated by a less-than-proportional increase in expenses, especially employee benefit expenses, which have increased merely by 0.9 percent YoY in FY23.

EBITDA margin showed substantial improvement, reaching 9.5 percent in FY23. The increase of 306 basis points from FY22 indicates enhanced operational efficiency and cost control, said Choice Broking. One basis point is a one-hundredth of a percentage point.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.