What you must know about the De Neers Tools IPO

De Neers Tools IPO, is In the NSE which is opening for subscription on 28th April 2023. The company, De Neers Tools Ltd, was incorporated way back in the year 1952 to manufacture and supply industrial tools. It manufactures some of the most basic tools required in mechanical operations like spanners, wrenches, pliers, cutters, Allen Keys, hammers, screw drivers and other items in a typical mechanical tool kit. It operates through a massive network of over 250 dealers spread across India. In addition to the basic tools and implements manufactured, De Neers Tools Ltd also makes more specialized safety tools like non-sparking tools, insulated steel tools, stainless tools, titanium tools, magnetic tools etc.

Currently, De Neers Tools Ltd boasts of some very marquee clients on its rolls. Its major clients include Tata Steel, Indian Oil Corporation (IOCL), Larsen & Toubro (L&T), Assam Petrochemicals, Lohia Corporation, Polycab Cables Ltd and the Indian Railways, among others. The company also bring some unique business strengths to the table. It has a pedigree of over 70 years in the business with substantial cumulative experience manifested by its core team. Its focus on distribution and specialized safety products has been an added advantage. Because of its pedigree and strong supply chain, the company tends to see a lot of repeat orders. The funds from the IPO will be used largely for working capital purposes.

Key terms of the SME IPO of De Neers Tools Ltd

Here are some of the highlights of the De Neers Tools Ltd IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 28th April 2023 and closes for subscription on 03rd May 2023; both days inclusive. It is entirely a fresh issue of shares by the company.
   

• The company has a face value of Rs10 per share. For the IPO, the company has fixed a price band of Rs95 to Rs101 and the IPO price will be discovered through book building.
   

• The company will issue a total of 22.768 lakh shares in the price band of Rs95 to Rs101 per share. At the upper end of the price band, the issue size works out to Rs23.00 crore.
   

• The company has allocated 25.04% of the issue for the qualified institutional buyers (QIBs), 36.92% for the non-institutional investors (NII / HNI) and the balance 38.03% allocation for the retail investors.
   

• The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of Rs121,200 (1,200 x Rs101 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 Rs242,400. There is no upper limit on what the HNI / NII investors can apply for. There are no such conditions applicable for the QIBs.
   

• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation for providing two-way quotes to ensure liquidity on the counter. The details of the market maker and the allocation of shares details are still awaited.
   

• The company has been promoted by Neeraj Kumar Aggarwal, Shilpy Aggarwal, and Kanav Gupta. Promoters currently hold 91.14% of the equity. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted proportionately.

While Khambatta Securities Ltd will be the lead manager to the issue, Bigshare Services Private Limited will be the registrar to the issue.

Key dates to be aware of in the De Neers Tools Ltd IPO (SME)

De Neers Tools IPO opens on Friday, April 28th, 2023 and closes on Wednesday May 03rd, 2023. The De Neers Tools ltd IPO bid date is from April 28th, 2023 10.00 AM to May 03rd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the May 03rd, 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 De Neers Tools Ltd

The table below captures the key financials of De Neers Tools Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The profit margins have been fairly low in the previous years, although it has picked to a higher level in FY22 and hence sustainability based on FY23 earnings will hold the key. Also, the sales growth has been quite erratic, but that can be attributed to the highly volatile environment during the pandemic and also the existence of the vast unorganized sector in this business space. However, the company has an established model with a matured market and a very long pedigree. However, investors must remember that this is a traditionally low margin business and faces tough competition from the unorganized sector.

For the latest fiscal year, the company has an EPS of Rs7.97 so the valuation is a little above 12.5X earnings on a rolling basis. The ROWN at 21.17% is fairly attractive, although the sustainability needs to be tested. That could be an overhang on valuations. For now, much of the upsides may be priced into the stock and investors may have to take a longer time frame on this IPO investment.