What you must know about Effwa Infra and Research IPO?

About Effwa Infra and Research Ltd

Effwa Infra and Research Ltd was incorporated in the year 2014 to provide engineering, consulting, procurement, construction, and integrated project management services. Its specialization is in the field of water pollution control with specific focus on wastewater and industrial effluent treatment, solid waste treatment and disposal, aeration systems, hazardous waste management and water treatment plants. It also acts as a consultant and offers value added consultancy services to its clients. The company vision is to offer environment friendly waste processing practices. Their gamut of services includes the design of the project, construction and procurement of raw materials including installation of wells and pump houses, laying of pipelines, electro-mechanical works, and execution. Effwa Infra and Research Ltd is active in the states of Andhra Pradesh, Chhattisgarh, Gujarat, Maharashtra, Odisha, West Bengal, Madhya Pradesh, and Rajasthan. It also caters to the special economic zones (SEZ), including the one at Adani Ports in Mundra. Till date, Effwa Infra and Research Ltd has completed more than 45 water management infrastructure projects for PSUs, municipal corporations, states, and private companies. It employs over 118 persons on its rolls. 

Highlights of the Effwa Infra and Research Ltd SME IPO

Here are some of the highlights of the Effwa Infra and Research IPO on the SME segment of the National Stock Exchange (NSE).

•    The issue opens for subscription on 05th July 2024 and closes for subscription on 09th July 2024; both days inclusive.

•    The stock of the company 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 ₹78 to ₹82 per share. The final price discovery will happen in the above price band only.

•    The IPO of Effwa Infra and Research Ltd has a fresh issue component and also an 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 of the IPO, Effwa Infra and Research Ltd will issue a total of 53,16,800 shares (53.17 lakh shares approximately), which at the upper band IPO price of ₹82 per share aggregates to fresh fund raising of ₹43.60 crore.

•    As part of the offer for sale, a total of 9,36,000 shares (9.36 lakh shares) will be offered, which at the upper band price of ₹82 per share aggregates to OFS size of ₹7.68 crore. The entire 9.36 lakh shares is being offered by the 2 promoter shareholders; Dr Varsha Subhash Kamal (4.65 lakh shares) and Subhash Ramavatar Kamal (4.71 lakh shares).

•    Therefore, the overall IPO size will also comprise of the fresh issue and an offer for sale of 62,52,800 shares (62.53 lakh shares approximately) which at the upper band IPO price of ₹82 per share aggregates to overall IPO size of ₹51.27 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 3,24,800 shares as quota for market inventory. Rikhav Securities 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 Dr Varsha Subhash Kamal and Subhash Ramavatar Kamal. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 72.99%.

•    The fresh issue funds will be used by the company for capex towards purchase of new office equipment, to meet the working capital needs and also partially for general corporate purposes.

•    Shreni Shares Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Rikhav Securities Ltd.

Effwa Infra and Research IPO – Key Dates

The SME IPO of Effwa Infra and Research Ltd IPO opens on Friday, 05th July 2024 and closes on Tuesday, 09th July 2024. The Effwa Infra and Research Ltd IPO bid date is from 05th July 2024 at 10.00 AM to 09th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 09th July 2024.

Data Source: Company RHP

It must be noted that 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 11th 2024, will be visible to investors under the ISIN Code – (INE0U9101019). This allocation 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.

IPO Allocation and Minimum Investment Lot Size

Effwa Infra and Research Ltd has announced a market maker allocation of 3,24,800 shares, which will be used as inventory for market making. Rikhav Securities Ltd is the appointed market maker. The net offer (net of market maker allocation) will be divided among QIB investors, retail investors, and HNI/NII investors. The breakdown of the overall IPO allocation for Effwa Infra and Research Ltd is as follows:

Data Source: Company RHP filed with SEBI

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹1,31,200 (1,600 x ₹82 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 3,200 shares and having a minimum lot value of ₹2,62,400. 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 Effwa Infra and Research Ltd.

Financial Highlights of Effwa Infra and Research Ltd

The table below captures the key financials of Effwa Infra and Research Ltd for the last 3 completed financial years. 

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have growth at a modest clip, with FY24 revenues about 39.1% above the revenues of FY22, despite tepid sales growth in FY23. As net profit traction has picked up over the last two years, the net margins have also improved sharply to 9.51% in the latest year.

•    While net margins of the company have been relatively strong at 9.51%, the other return margins have also shown growth traction in latest year. The return on equity (ROE) stands robust at 37.15% in FY24, while the return on assets (ROA) is also strong at 16.62% in FY24. Both are up sharply from the previous years.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 1.75X and that only gets further accentuated when you look at the healthy levels of the ROA. Overall, the ratio picture of the company looks to be quite sound.

The company has latest year EPS of ₹7.74, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹82 per share at 10-11 times P/E ratio. That is very reasonable pricing if you factor in the robust growth in the ROE, net margins, and the return on assets. It is already at almost single-digit valuations and FY25 growth could still improve the picture.

To be fair, Effwa Infra and Research Ltd does bring intangible advantages to the table. It has established relationships and strategic partnerships and its record of timely execution and its large order book are advantages. Most of its engineering expertise is in-house, which makes its model a lot more integrated vertically. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. Although it would also be a good idea to be prepared for a higher risk appetite.