What you must know about Supreme Power Equipment?

Supreme Power Equipment Ltd was incorporated in 1994 and is engaged in manufacturing, upgrading, and renovating various types of transformers. These include power transformers, generator transformers, windmill transformers, distribution transformers, isolation transformers, solar transformers, energy efficient transformers, converters, and rectifier transformers. Its entire product portfolio is largely biased in favour of the power sector, both the traditional power sector and the renewable power sector. It offers an import support strategy for power companies in India with cost effective and high quality solutions. Till date, the company has provided transformers to various customer segments. These customer segments include public electric utility companies and the wind mills segment.

Supreme Power Equipment Ltd  also has a global presence in the sense that it has also supplied transformers to Gamesa of Spain for their solar power projects in India. These transformers have a voltage range of 16KVA to 25MVA/110KV and a capacity range from 1250KVA/22KV to 6000 KVA/33KV. The company is ISO-9001:2015 certified for the design, manufacture, servicing, and supply of transformers. Supreme Power Equipment Ltd  has a manufacturing unit located at Thirumazhisai, Chennai spread across 17,876 SFT. The manufacturing facilities of Supreme Power Equipment Ltd are equipped with modern machinery and technology, which results in lower maintenance costs of transformers.

Key terms of the SME IPO of Supreme Power Equipment Ltd

Here are some of the highlights of the Supreme Power Equipment IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 21st December 2023 and closes for subscription on 26th December 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 IPO has been fixed in the range of ₹61 to ₹65 per share. Being a book built issue, the final price will be discovered in the above band, through book building.
   
• The IPO of Supreme Power Equipment 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 portion of the IPO, Supreme Power Equipment Ltd will issue a total of 71,80,000 shares (71.80 lakh shares), which at the upper band IPO price of ₹65 per share aggregates to a fresh fund raising of ₹46.67 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 total IPO size will also comprise of the issue of 71,80,000 shares (71.80 lakh shares) which at the upper IPO band price of ₹65 per share will aggregate to overall IPO size of ₹46.67 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 9,32,000 shares. The market maker for the issue is Share India 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 Vee Rajmohan and KV Pradeep Kumar. The promoter holding in the company currently stands at 79.37%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 57.54%.
   
• The fresh issue funds will be used by the company for meeting its capex and for funding working capital gaps. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• Narnolia Financial Services  Ltd will be the lead manager to the issue, and Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is Share India Securities Ltd.

IPO allocation and minimum lot size for investment

Supreme Power Equipment Ltd has allocated 5.02% of the issue size for the market makers to the issue, Arham Shares Private Ltd. The net offer (net of market maker allocation) will be divided equally between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Supreme Power Equipment 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 2,000 shares. Thus, retail investors can invest a minimum of ₹130,000 (2,000 x ₹65 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 4,000 shares and having a minimum lot value of ₹260,000. 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 Supreme Power Equipment Ltd IPO (SME)

The SME IPO of Supreme Power Equipment Ltd IPO opens on Thursday, December 21st, 2023 and closes on Tuesday, December 26th, 2023. The Supreme Power Equipment Ltd IPO bid date is from December 21st, 2023 10.00 AM to December 26th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 26th, 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. The credit of shares to the demat account on December 28ths 2023, will be visible to investors under the ISIN Code – (INE0QHG01026).

Financial highlights of Supreme Power Equipment Ltd

Unfortunately, the company has published the financial statements in its prospectus only for the latest fiscal year of FY23. From an analytical perspective, it is very difficult to take a view on the stock in the absence of financials since valuation call may not be too relevant unless supported by past data. Suffice to say, that the company has a strong ROE of 83% and low debt equity of less than 0.50X. In addition, the P/E is around 10X which is attractive. Also, the business niche in which the company operates is a very solid niche with strong demand and an assured market. However, in the absence of the full stack of financials, we are skipping the valuation part for this report.