What you must know about Sadhav Shipping IPO?

Sadhav Shipping Ltd was incorporated in the year 1992. The company operates marine assets and coastal logistics; and also provides other port maritime-related services. The company owns barges which are used in coastal and inland waterway shipping. These barges are normally used for last mile transport were ports are not fully accessible. Sadhav Shipping Ltd operates and manages port crafts; apart from offering high-speed security boats for patrol services. Sadhav Shipping Ltd operates across 3 key verticals. The first vertical is offshore logistics, which supports exploration and production of oil and gas in offshore fields. The second vertical is port services which supplies high-speed patrol boats for ports. The third vertical is the oil spill response vertical, which gets into action with necessary response equipment when there is an oil spill. Sadhav Shipping Ltd has a portfolio of 24 ships, of which 19 are owned and 5 are leased. It employs 421 personnel on its rolls.

The company name is derived from the ancient merchant community in the Kalinga Empire, Sadhava, which is in present day Odisha. Sadhava merchant community was known for its enterprise with merchants in that era trading between the East Coast of India to as far off as South East Asia and China with an advanced fleet of merchant vessels. Sadhav Shipping Ltd carries out operations, maintenance & repairs (O&M, MRO) on board ships and offshore structures (including oil rigs). Over the years, Sadhav Shipping Ltd has established a name for itself as a formidable force in offshore logistics, dry dock & ship repair, oil spill response with a strong franchise in coastal logistics, port services, offshore oil & gas projects, and shipbuilding projects.

Key terms of the Sadhav Shipping IPO (SME)

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

• The issue opens for subscription on 23rd February 2024 and closes for subscription on 27th February 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the issue is set at ₹95 per share. Being a fixed price issue, there is no question of price discovery involved in the process.
   
• The IPO of Sadhav Shipping 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, Sadhav Shipping Ltd will issue a total of 40,18,800 shares (40.188 lakh shares), which at the fixed IPO price of ₹95 per share aggregates to fresh fund raising of ₹38.18 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 40,18,800 shares (40.188 lakh shares) which at the fixed IPO price of ₹95 per share will aggregate to overall IPO size of ₹38.18 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,02,800 shares. Sunflower Broking 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 Kamal Kant Biswanath Choudhury, Sadhana Choudhury, Vedant Kamal Kant Choudhury, and Subhas Chandra Choudhury. The promoter holding in the company currently stands at 96.44%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 69.44%.
   
• The fresh issue funds will be used by the company for part funding capex to purchase additional boats / vessels, repayment, or prepayment of high cost loans and for working capital needs. Part of the funds will also be used for general corporate expenses.
   
• ISK Advisors Private Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is Sunflower Broking Private Ltd.

IPO allocation and minimum lot size for investment

Sadhav Shipping Ltd has already announced the market maker allocation at 2,02,800 shares as inventory for market making. Sunflower Broking Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Sadhav Shipping 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 1,200 shares. Thus, retail investors can invest a minimum of ₹114,000 (1,200 x ₹95 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 2,400 shares and having a minimum lot value of ₹228,000. 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 Sadhav Shipping IPO (SME)

The SME IPO of Sadhav Shipping Ltd IPO opens on Friday, 23rd February 2024 and closes on Tuesday, 27th February 2024. The Sadhav Shipping Ltd IPO bid date is from 23rd February 2024 at 10.00 AM to 27th February 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 27th February 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 February 29th 2024, will be visible to investors under the ISIN Code – (INE0K5H01010).

Financial highlights of Sadhav Shipping Ltd

The table below captures the key financials of Sadhav Shipping 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 steady double digits in the last 2 years and one can see a secular growth trend over last 2 years. Overall growth over last two years is around 30%. The PAT margins at close to 10% have only picked up momentum in the latest year due to profits more than doubling, thanks to better OPMs.
   
• While net margins of the company are strong at 9.97%, the ROE and return on assets in the latest year are also attractive and stable at 18.94% and 6.67% respectively. A lot will predicate on whether the current status of margins can be maintained in coming years.
   
• The asset turnover ratio or the sweating ratio has drifted lower in the latest year to 0.67X. However, the lower sweating is due to the capital intensive nature of the business, with the ROA at 6.67% offering some relief to the investors. With ROA attractive, asset turnover ratio is likely to get magnified.

The company has latest year EPS of ₹7.50 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹5.25. The latest year earnings are being discounted by the IPO price of ₹95 per share at 12-13 times P/E ratio. One has to look at the P/E ratio from two standpoints. Firstly, the half year EPS for FY24 is higher at ₹3.94, which makes the valuations more reasonable if forward EPS is annualized. However, the real takeaway is that the narrative becomes a lot more enticing once the economies of scale start to reflect on the profit numbers. The company has some inherent advantages to start with like a 27 year legacy, a strong portfolio of assets to service client needs and an established and loyal client base. The valuations definitely leave something on the table for investors, if compared to the peer group. However, investors must be prepared for a higher level of risk and take a longer term perspective in this IPO of Sadhav Shipping Ltd. Also, the risk levels in this business tend to be high, with the business flows cyclical.