What you must know about Hi-Green Carbon IPO

Hi-Green Carbon Ltd was incorporated in the year 2011 and the company is engaged in the business of waste tyres recycling. It has a manufacturing plant located in the state of Rajasthan, which operates on a continuous pyrolysis process. This process entails an uninterrupted working process with continuous feeding and discharging system controlled by the program logic controller (PLC). The entire process is automated end-to-end with virtually no human intervention, making it economical and also largely error free. The plant in Rajasthan has the capacity to recycle 100 MT of waste tyres per day. Hi-Green Carbon Ltd is also planning to put up another manufacturing plant with similar capacity in the Dhule district of Maharashtra.

The company recycles the waste tyres and manufactures a number of products out of it. Some of its key products include Recovered Carbon Black (RCB) and Steel Wires under Raw Material Category and Fuel Oil and Synthesis Gas under Energy components category. The Synthesis Gas is further used for the manufacture of sodium silicate better known in common parlance as raw glass. The company is fully compliant with good manufacturing practice (GMP) and all its products are also compliant in terms of the applicable sustainability standards.

Key terms of the Hi-Green Carbon IPO (SME)

Here are some of the highlights of the Hi-Green Carbon IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 21st September 2023 and closes for subscription on 25th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price band for the fresh issue IPO has been fixed in the band of ₹71 to ₹75 per share. For all analysis purposes, the upper end of the price band has been considered.
   
• The IPO of Hi-Green Carbon Ltd has a fresh issue component and also has an offer for sale (OFS) component. It must be note that 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 portion of the IPO, Hi-Green Carbon Ltd will issue a total of 59,90,000 shares (59.90 lakh shares), which at the upper end of the price band of ₹75 per share aggregates to a total fresh fund raising of ₹44.92 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, it will entail the sale of 10,50,000 shares (10.50 lakh shares), which at the upper end of the price band of ₹75 per share aggregates to an OFS size of ₹7.88 crore. The entire offer for sale is being made by the promoter M/S RNG Finlease Private Ltd.
   
• As a result, the total IPO of Hi-Green Carbon Ltd will entail the issue cum sale of a total of 70,40,000 shares (70.40 lakh shares), which at the upper end of the band price of ₹75 per share aggregates to a total IPO size of ₹52.80 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 4,20,800 shares. The market maker for the issue is Spread X Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by M/S RNG Finlease Private Ltd, Amitkumar Bhalodi, Shaileshkumar Makadia, Krupa Detharia, Radhika Bhalodi, Shriyakumari Makadia and Koosh Detharia. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce to 71.83%.
   
• The fresh issue funds will be used by the company for setting up a new manufacturing unit in Maharashtra, meeting of working capital funding gaps and also for general corporate purposes.
   
• While Beeline Capital Advisors Private Ltd will be the lead manager to the issue, Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 50% of the issue size for the QIBs, 35% for the retail investors and the balance 15% for the HNI / NII investors or the non-retail investors in the IPO of Hi-Green Carbon Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹1,20,000 (1,600 x ₹75 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 ₹2,40,000. 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 Hi-Green Carbon IPO (SME)

The SME IPO of Hi-Green Carbon IPO opens on Thursday, September 21st, 2023 and closes on Monday September 25th, 2023. The Hi-Green Carbon Ltd IPO bid date is from September 21st, 2023 10.00 AM to September 25th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 25th, 2023.

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.

Financial highlights of Hi-Green Carbon Ltd

The table below captures the key financials of Hi-Green Carbon Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 13.73% in the current year, whereas in previous years the net margins were closer to the range of 7%. Considering the rapid growth, the latest numbers may be more meaningful than the historical numbers. This business has risks in that there is a fairly large informal cottage industry that is into this business. However, this company can be a good bet on the formalization of this side of the business. Also, the ROE is consistently in the range of 30% to 40%, which his very attractive. Also, if you look at the sales trend of the company, the sales are up more 3-fold over the last 3 years. More importantly, the growth in sales has been steady and secular.

Based on the P/E model applied to the latest year ,the company is at less than 13 times earning and much more attractive on forward earnings. The fresh funds are going to be deployed for the Maharashtra plant so the allocation of funds is going to be value accretive. The company does look like a good bet on the recycling space and the increased formalization as it becomes a critical part of green usage of resources. However, investors would be advised to be ready for a higher risk appetite and a longer holding period in the IPO of Hi-Green Carbon Ltd.