What you must know about Energy-Mission Machineries IPO?

Energy-Mission Machineries (India) Ltd was incorporated in the year 2011 to design and manufacture a wide range of metal forming machines for industrial metal fabrication. The company specializes in high precision machines with applications across a cross section of industry groups. Some of the industries that find extensive applications for the products of Energy-Mission Machineries (India) Ltd include automobiles, steel, HVAC, agricultural machinery, construction machinery, elevators, food processing machinery etc. Some of its popular products include complex precisions based products like press brakes, shearing, plate rolling, hydraulic presses, and busbar bending, cutting, and punching machines. The company currently caters to more than 1,050 customers across India and several parts of the globe. Energy-Mission Machineries (India) Ltd has a manufacturing facility in Sanand, near Ahmedabad with the capacity to manufacture 1,000 machines annually.

Some of the key clients of Energy-Mission Machineries (India) Ltd include big names like UFLEX, ASAL, Pennar Industries, KEC, ABB, Larsen & Toubro, Hitachi, BEML, Wheels India, Elecon Engineering, JSW Steel, BHEL, Toyota, Sintex, Everest Industries, Crompton Greaves, Bajaj group, Mahindra group etc. with the capacity to make 1,000 machines annually, the company has already executed 6,000 institutions globally, including in countries like the US and China. The focus of the company has been on customized and customer-centric solutions rather than on off-the-shelf products. Energy-Mission Machineries (India) Ltd also makes most of the parts that go into machinery, giving it full control over the complete production value chain.

Key terms of the Energy-Mission Machineries (India) IPO 

Here are some of the highlights of the Energy-Mission Machineries IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 09th May 2024 and closes for subscription on 13th May 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 price for the book building issue is set in the price band of ₹131 to ₹138 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of Energy-Mission Machineries (India) Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Energy-Mission Machineries (India) Ltd will issue a total of 29,82,000 shares (29.82 lakh shares), which at the upper band IPO price of ₹138 per share aggregates to fresh fund raising of ₹41.15 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 29,82,000 shares (29.82 lakh shares) which at the upper band IPO price of ₹138 per share will aggregate to overall IPO size of ₹41.15 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,50,000 shares. Hem Finlease Private Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Satishkumar Parmar, Dinesh Kumar Chaudhary, Sanjay Khankar, Ashokkumar Panchal, and Snehal Mehta. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.67%.
   
• The fresh issue funds will be used by the company for funding capex at its Sanand unit; which includes the capex towards civil construction and for the installation of plant and machinery. Part of the funds will also be used for working capital needs and to meet general corporate expenses.
   
• Hem Securities 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 Hem Finlease Private Ltd.

IPO allocation and minimum lot size for investment

Energy-Mission Machineries (India) Ltd has already announced the market maker allocation at 1,50,000 shares 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 Energy-Mission Machineries (India) Ltd in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹138,000 (1,000 x ₹138 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 2,000 shares and having a minimum lot value of ₹276,000. 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.

Key dates to be aware of in the Energy-Mission Machineries (India) IPO (SME)

The SME IPO of Energy-Mission Machineries (India) Ltd IPO opens on Thursday, 09th May 2024 and closes on Monday, 13th May 2024. The Energy-Mission Machineries (India) Ltd IPO bid date is from 09th May 2024 at 10.00 AM to 13th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 13th May 2024.

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 May 15th 2024, will be visible to investors under the ISIN Code – (INE0S1L01013). 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.

Financial highlights of Energy-Mission Machineries (India) Ltd

The table below captures the key financials of Energy-Mission Machineries (India) Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown at a robust pace in the last 2 years and in the latest year, the total sales has more than doubled over FY21. That is robust growth in top line over two years. More importantly, this has been accompanied by sharp growth in the net profit levels as well as the net profit margins (PAT margins).
   
• While net margins of the company have only stabilized in the latest year at close to 8%. PAT margins were subdued in the previous two years, but that is more because profit flows are back-ended in this business model. The return on equity (ROE) has grown sharply to over 33% in the latest year, while the ROA is robust at 9.6% in FY23.
   
• The asset turnover ratio or the sweating ratio has been above 1.20X and that is a good sign that sales have picked up to cover the asset outlays. Being a manufacturing company into precision machinery, the company tends to be capital intensive. However, this sweating ratio also gets magnified by the robust levels of return on assets (ROA).

The company has latest year EPS of ₹9.47 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹138 per share at 14-15 times P/E ratio. One has to look at the P/E ratio from two perspectives. Firstly, the 5-months EPS for FY24 is much higher at ₹5.59, which translates into full year extrapolated EPS of ₹13.42 per share, which now makes the valuation more compelling at around 10-11 times P/E ratio. This makes the valuations look a lot more reasonable.

The other story one must appreciate here is that Energy-Mission Machineries (India) Ltd provides services to the precision machinery industry, which is not only a highly demanding segment but also where the margins grow with time. The company brings to the table some natural advantages like its established track record,  client base spread across large parts of the globe, apart from a robust industry level client base in India. It is also full integrated manufacturer, giving total control over input flows. For investors with patience and willing to wait for a year or more, this can be a good opportunity to play capex growth in India.