What you must know about Presstonic Engineering IPO?

Presstonic Engineering Ltd was incorporated in the year 1996, so the company has a pedigree of close to 28 years in the business. Presstonic Engineering Ltd is engaged in the business of manufacturing products for metro rail rolling stock, metro rail signalling, and other metro rail Infrastructure. These products manufactured by Presstonic Engineering Ltd are supplied to international and domestic original equipment manufacturers (OEMs) that are engaged in manufacturing and servicing such rail and metro rail rolling stock and signalling equipment. Presstonic Engineering Ltd has a full fledged manufacturing facility that spans over 28,300 square feet (SFT) and it is designed with the latest technology in mind and equipped with the most state-of-the-art machinery, equipment, and instruments. The facility is capable of manufacturing a full range of products for railways and metros.

The company offers a wide range of products as part of its product portfolio. These include rolling stock interior products such as saloon bucket type seats, custom coloured engineered handles, grab pole systems, hand rail systems, emergency evacuation ramps, and honeycomb partition panels. There are a host of other products also that the company manufacture for its local and international customer base. Over the last 28 years, the company has built deep customer insights, product expertise and a seamless manufacture and marketing process. The company also has strong supplier relationships, which have stood the company in good stead over the years. Some of its prestigious clients include Alstom, Hyundai Rotem, Bombardier, L&T, Airbus Defence, Jaipur Metro, Pune Metro, Mumbai Metro, UP Metro, Chennai Metro, Carrier, Stanley Black & Decker, SAPA etc.

Key terms of the Presstonic Engineering IPO

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

• The issue opens for subscription on 11th December 2023 and closes for subscription on 13th December 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price has already been fixed at ₹72 per share. Being a fixed price IPO, there is no question of price discovery here.
   
• The IPO of Presstonic Engineering Ltd has only a fresh issue component with no book built 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 portion of the IPO, Presstonic Engineering Ltd will issue a total of 32,36,800 shares (32.37 lakh shares approximately), which at the fixed IPO price of ₹72 per share aggregates to a fresh issue size of ₹23.30 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 32,36,800 shares, which at the fixed IPO price of ₹72 per share will aggregate to ₹23.30 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 1,63,200 shares. The market maker for the issue is Nikunj Stock Brokers 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 Herga Poornachandra Kedilaya and Yermal Giridhar Rao. The promoter holding in the company currently stands at 99.97%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 57.99%.
   
• The fresh issue funds will be used by the company for funding capex, repayment / prepayment of existing high cost loans, and working capital funding. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• Finshore Management Services Ltd will be the lead manager to the issue, and Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

Presstonic Engineering Ltd has allocated 5.11% of the issue size for the market makers to the issue, R.K. Stock Holding Private Ltd. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of Presstonic Engineering Ltd in terms of the allocation to various categories are 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 ₹115,200 (1,600 x ₹72 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 ₹230,400. 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.

Key dates to be aware of in the Presstonic Engineering IPO (SME)

The SME IPO of Presstonic Engineering Ltd IPO opens on Monday, December 11th, 2023 and closes on Wednesday, December 13th, 2023. The Presstonic Engineering Ltd IPO bid date is from December 11th, 2023 10.00 AM to December 13th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 13th, 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 Presstonic Engineering Ltd

The table below captures the key financials of Presstonic Engineering IPO 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 revenue spike has been sharp in the last two years, although that is due to a very low base. That also makes the numbers not comparable over the last 3 years. However, the real growth has been on net profits after the turnaround in FY21 losses.
   
• The net margins have been in the range of 12% in the latest year. However, here again, the comparisons are tough since the company had been making net losses till FY21 and hence margins are tough to calculate. Even ROE is only meaningful for the latest year of FY23 at 51.9% due to losses in FY21. Growth in profits over FY22 has been multi-fold.
   
• Being a capital intensive business, the asset turnover ratio or the asset sweating ratio has been below 1 on a consistent basis. This may not be too representative as this ratio can gradually pick up with the improved profits. This is key to sustaining ROE.

The company has latest year EPS of ₹5.73 and weighted average EPS of ₹2.91 for the last 3 years. However, a lot will depend on what level the EPS sustains in the long run since growth has been quite robust only in the latest year. By latest year valuations, the company looks reasonably priced at 12.57X, so it is the sustainable EPS that will matter. The focus would be on the next few quarters. This is generally a cyclical business so investors must keep that risk factor while investing. The IPO will be ideal for investors willing to take on higher risk and wait for longer investment time frame.