What you must know about Pentagon Rubber IPO

Pentagon Rubber Ltd, is an SME IPO on the NSE which is opening for subscription on 26th June 2023. The company, Pentagon Rubber Ltd, was incorporated in the year 2004 and it manufactures rubber conveyor belts, transmission belts, rubber sheets and elevator belts. These are advanced precision rubber products that need a high degree of technological finesse. The manufacturing plant of Pentagon Rubber Ltd is located in Dera Bassi in the state of Punjab. It is roughly 25 KM away from the capital city cum state of Chandigarh.

Pentagon Rubber has one of the longest conveyor belting presses in India with a production capacity of 21 metres in a single stroke. The unit has a production capacity of more than 300 square KM of rubber belts on an annual basis. To boost its R&D efforts, the company also has modern laboratory that can produce conveyor belts as per most of the global standards.  The company has a fairly large domestic and global export market and has received several accolades in India and abroad.

Key terms of the SME IPO of Pentagon Rubber Ltd

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

• The issue opens for subscription on 26th June 2023 and closes for subscription on 30th June 2023; both days inclusive.
   
• The company has a face value of ₹10 per share. The issue will be a book built issue and the company is yet to announce the price band. The final price will bd discovered within the band through the process of book building.
   
• The company will issue a total of 23.10 lakh shares at the at a price band per share that is yet to be fixed. It is only after the issue price band is announced that we will get an idea of the size of the issue.
   
• There is no book built portion in the IPO and the entire IPO will be in the form of fresh issue only. Hence the total size of the IPO will also entail the overall issue of 23.10 lakh shares, although the value of the IPO would only be known once the price band is fixed.
   
• The minimum lot size for the retail investment and the minimum lot size for the HNI / NII investors will only be known once the price band is determined. The minimum lost size for HNI / NII investors is normally double that of the retail investors.
   
• The company has been promoted by Anil Jain, Lalit Jain, Ashish Jain and Saurabh Jain. Pre issue, the promoter stake is at 100% but post the fresh issue, their overall promoter stake in Pentagon Rubber Ltd will stand reduced to 70.04%, with the balance in public.
   
• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation of 116,000 shares. Sunflower Broking Ltd will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.
   
• Beeline Capital Advisors Private Limited will be the lead managers to the IPO. The registrar to the issue will be Link Intime India Private Ltd.

In terms of the quantity allocation, the company will allocate half of the IPO shares to the QIBs, at least 15% to the HNI / NII category and minimum 35% to the retail. The table below captures the gist of the allocation design.

Key dates to be aware of in the Pentagon Rubber Ltd IPO (SME)

The SME IPO of Pentagon Rubber Ltd IPO opens on Monday, June 26th, 2023 and closes on Friday June 30th, 2023. The Pentagon Rubber Ltd IPO bid date is from June 26th, 2023 10.00 AM to June 30th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the 30th of June 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 Pentagon Rubber Ltd

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

Data Source: Company DRHP filed with SEBI

The profit margins of the company have improved sharply in the last two years from a range of 5% net margins to nearly 10% net margins. Also, the sales growth has bene steady in the last two years and the latest 9 months of FY24 also testify to improvement in financials. The company intends to use the fresh funds raised for the working capital, which his normally not looked down upon positively by the market. Having said that, the product is a niche product with perpetual demand.

Valuations are tough to take a call on since the price band is yet to be fixed but the sector does see competition from the unorganized sector. With an EPS of around Rs4 per share, a lot will depend on the price point of the IPO and whether it leaves something on the table for investors. Prima facie, the business model is suited to investors with a high risk appetite.