What You Must Know About Aprameya Engineering IPO: Price Band ₹56 to ₹58 per share

About Aprameya Engineering Ltd

Aprameya Engineering Ltd was incorporated in the year 2003 and is a specialized service provider to the healthcare industry in India.  The company installs and maintains Intensive Care Units (ICU), Neonatal Intensive Care Units (NICU), Paediatric Intensive Care Units (PICU), Operation Theatres, and pre-fabricated structure wards in hospitals as well as at medical care centres. Aprameya Engineering Ltd  provides these services on a turnkey basis. In addition, the company also supplies premium healthcare and diagnostic equipment to private hospitals, government hospitals, and medical practitioners. The company operates in two verticals; offering healthcare infrastructure located at hospitals and medical care centres onsite. The second vertical pertains to dealing in high value medical equipment. 

Just about 4 years back, Aprameya Engineering Ltd forayed into the specialized business of setting up ICUs and operation theatres. Till date, the company has installed 2,000 critical care beds, including ICUs, NICUs, and PICUs. It has also secured an order to set up modular operation theatres across the state of Rajasthan. The company also has 4 warehouses located at Ahmedabad for storage and supply. For the hospitals, Aprameya Engineering Ltd provides medical equipment and solutions that include Electrosurgical Generator, Electrosurgical Unit, CO2 Insufflator, LED Surgery Light, Surgical and medical Examination Light, ICU Respiratory Monitoring System, ICU Ventilation System, Anaesthesia Workstation, Jaundice Meter etc. The company has a staff of 44 personnel, who handle the routine operations and marketing for the business. 

Highlights of the Aprameya Engineering IPO

Here are some of the highlights of the Aprameya Engineering IPO on the SME segment of the National Stock Exchange (NSE).

•    The issue opens for subscription on 25th July 2024 and closes for subscription on 29th July 2024; both days inclusive.

•    The stock of Aprameya Engineering Ltd has a face value of ₹10 per share and it is a book built issue. The book building price band for the IPO has been set in the range of ₹56 to ₹58 per share. The final price discovery will happen in the above price band only.

•    The IPO has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion, the company will issue a total of 50,40,000 shares (50.40 lakh shares), which at the upper band IPO price of ₹58 per share aggregates to fresh fund raising of ₹29.23 crore.

•    Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 50,40,000 shares (50.40 lakh shares) which at the upper band IPO price of ₹58 per share aggregates to overall IPO size of ₹29.23 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 2,54,600 shares as quota for market inventory. Hem Finlease Private Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Saurabh Kishorbhai Bhatt and Chetan Mohan Joshi. The promoter holding in the company currently stands at 100.00%. Post the fresh issue of shares, promoter equity holding share will get diluted to 73.53%.

•    The fresh issue funds will be used by the company for funding the working capital needs of the business, including augmentation of long-term working capital for the business. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Hem Securities Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Hem Finlease Private Ltd. The IPO of Aprameya Engineering Ltd will be listed on the SME IPO segment of the NSE.

Aprameya Engineering IPO: Key Dates

Data Source: Company RHP

In ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on July 31st 2024, will be visible to investors under the ISIN Code – (INE0LQG01010). This credit to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

Aprameya Engineering IPO: Lot Sizes for Investment

Aprameya Engineering Ltd has announced a market maker allocation of 2,54,000 shares, which will be used as inventory for market making. Hem Finlease Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Aprameya Engineering Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,16,000 (2,000 x ₹58 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹2,32,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

There are no upper limits for investments by HNIs / NIIs in the IPO of Aprameya Engineering Ltd.

Financial Highlights: Aprameya Engineering Ltd

The table below captures the key financials of Aprameya Engineering Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

Before we get into the valuations story, there are two important things to note here. Both these are likely to have a larger bearing on the valuation story.

•    The revenues have shown a consistent fall over the last 2 years and that does not inspire too much confidence in the investors. For instance, the FY24 sales are just about one-third of the FY22 sales. The fall in sales revenues has been caused by a sharp fall in one of the verticals, viz., the provision of medical infrastructure to hospitals. The other business of dealing in medical equipment is still giving a robust performance. Since the medical infrastructure is over 70% of the business, it does raise some questions about the sustainable level of revenues in the future.

•    The second factor to note is that the intrinsic nature of the business is a high risk business. There are steep penalties specified by the hospitals and medical centres as part of the infrastructure provider contract. This could mean delays in disputed payments, deduction from the total amount payable for reasons leading to either time or cost overruns during the term of the contract. In addition, the company can also be asked to pay compensation or the contract can also be terminated at short notice, which could entails huge costs to the company. These are the risks in the business model that the investors should be conscious of.

•    If you look at any of the profitability ratios like net profits margins, return on equity (ROE), or even return on assets (ROA), there is a perceptible fall in the ratios on all these counts over the last 3 years. That is likely to put strain on valuations.

The company has latest year EPS of ₹2.47, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹58 per share at 23-24 times P/E ratio. That is very expensive for a company that has seen such a sharp fall in the net revenues and also in the profitability ratios. Hence, that is likely to weigh on the already steep valuations.

To be fair, Aprameya Engineering Ltd does bring some intangible advantages to the table. It has a firm arrangement with many hospitals and medical centres. The model is also a very scalable model. However, the sharp fall in revenues and profitability are hard to fathom and much harder to value. Investors are advised to be cautious on this stock, unless there is