What you must know about Sona Machinery IPO?

Sona Machinery Ltd was incorporated in the year 2001 and the company is engaged in the manufacture of machinery for agricultural processing. In Terms of its product range, the company manufactures grain pre-cleaner machines, rotary drum cleaner, vibro-classifiers, stone separator machines, paddy de-husker machines, husk aspirator, length grader, belt conveyer, bucket elevator etc. Sona Machinery Ltd offers the full gamut of solutions pertaining to agricultural machinery, which includes engineering, installation, supervision, and machine commissioning.

In addition, it also provides complete solution for the milling sector, which begins from grain unloading and milling, extending all the way to pre-crushing for ethanol distilleries. In the rice milling business, its service gamut ranges from paddy unloading to rice packing, covering the entire rice value chain in the process. It has a manufacturing facility located at Ghaziabad, Uttar Pradesh, with a total area of approximately 52,205 SFT as well as a warehouse for storage of material and finished goods. The company has around 390 personnel on its rolls.

Key terms of the Sona Machinery IPO SME

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

• The issue opens for subscription on 05th March 2024 and closes for subscription on 07th March 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book building issue. The price for the book building issue is set in the price band of ₹136 to ₹143 per share. Being a book built issue, the price will be discovered in the above band.
   
• The IPO of Sona Machinery 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, Sona Machinery Ltd will issue a total of 36,24,000 shares (36.24 lakh shares), which at the upper band of IPO price of ₹143 per share aggregates to fresh fund raising of ₹51.82 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 36,24,000 shares (36.24 lakh shares) which at the upper band IPO price of ₹143 per share will aggregate to overall IPO size of ₹51.82 crore.
   
• Like every SME IPO, this issue also has a market making portion. The market making inventory is normally around 5% of the issue size. Hem Finlease Private Ltd will be the market maker, but the quantum is yet to be announced. 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 Vasu Naren and Shweta Baisla. The promoter holding in the company currently stands at 100%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.59%.
   
• The fresh issue funds will be used by the company towards capex for setting up a manufacturing unit in Ghaziabad, repayment of outstanding debt and letters of credit (L/C) availed by the company and for general corporate purposes.
   
• Hem Securities 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 Hem Finlease Private Ltd

IPO allocation and minimum lot size for investment

Sona Machinery Ltd is yet to announced the exact number of shares reserved for market makers. 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 retail investors, QIB investors and the HNI / NII investors. The breakdown of the overall IPO of Sona Machinery 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 1,000 shares. Thus, retail investors can invest a minimum of ₹143,000 (1,000 x ₹143 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 ₹286,000. 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 Sona Machinery IPO (SME)

The SME IPO of Sona Machinery Ltd IPO opens on Tuesday, 05th March 2024 and closes on Thursday, 07th March 2024. The Sona Machinery Ltd IPO bid date is from 05th March 2024 at 10.00 AM to 07th March 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 07th March 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 March 12th 2024, will be visible to investors under the ISIN Code – (INE0Q6H01012).

Financial highlights of Sona Machinery Ltd

The table below captures the key financials of Sona Machinery 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 frenetic pace in the last 2 years and hence the latest year revenue data shows a secular growth trend, which is a positive signal. The latest year sales have doubled over last year and grown 13-times over FY21. The net profits have also grown more than 2-fold in last one year and multi-fold since FY21.
   
• While net margins of the company have grown sharply in last 2 years, it is fairly robust in the latest year at 9.52%. Also, the ROE at 67.69% and ROA at 26.91%, show a strong performance by the company on the capital balance sheet.
   
• The asset turnover ratio or the sweating ratio is very attractive at 2.83X and that is a good sign that sales have picked up to cover the asset outlays. With scale, the impact should be visible on profits too, although the asset base will expand post issue. However, with ROA attractive, lower sweating is still sustainable.

The company has latest year EPS of ₹7.63 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹4.95. The latest year earnings are being discounted by the IPO price of ₹143 per share at 19-20 times P/E ratio. However, the real story is that the narrative becomes a lot more enticing once the economies of scale start to reflect on the bottom line numbers. That will take some time, but this is an area that is worth betting on for the next 3-4 years. Investors with a higher risk appetite and a longer time frame must be looking at this IPO.