What you must know about the Krishca Strapping Solutions SME IPO

Krishca Strapping Solutions Ltd, is an SME IPO on the NSE which is opening for subscription shortly. The company, Krishca Strapping Solutions Ltd, was incorporated in 2017 as a manufacturer and wholesale supplier of strapping tools and strapping seal. The company has an established manufacturing facility in Chennai with a manufacturing capacity of 18,000 MT (metric tonnes) of steel straps and 80 million seals per month. Its product range includes some very specialized products like PLC controlled products, super jumbo coils etc. The company uses the fully automated heat treatment process as well as a pollution free and lead-free production process for its manufacturing activities.

Currently, the promoters and the promoter group jointly hold 86.34% of the equity while the public holds the balance 13.66% equity in the company. Post the IPO issue, the promoter equity would get proportionately diluted. The funds raised through the IPO will be used for capital expenditure towards setting up a new strapping line and for full repayment of certain secured borrowings of the company. The company has allocated 50% of the net offer for the QIBs, 15% for the HNI / NII category and the balance 35% for retail investors.

Key terms of the Krishca Strapping Solutions SME IPO

Here are some of the highlights of the Krishca Strapping Solutions IPO on the SME segment of the National Stock Exchange (NSE).

• The opening and closing dates for the IPO are yet to be announced and an announcement to that effect is expected shortly from the company.
   

• The company has a face value of Rs10 per share. For the IPO, the company being a book-built issue will be setting a price band instead of a fixed price. The actual IPO price band will be announced just before the date of the IPO opening.
   

• The company will issue a total of 33.20 lakh shares and the final issue size will be dependent on the price band that is decided for the issue. Post the IPO, the outstanding equity shares will increase from 87.50 lakhs to 120.70 lakh shares.
   

• Since the promoter number of shares will remain the same at 75.55 lakh shares, the promoter stake in the company will reduce automatically from 86.34% to 62.59%. Fresh issue of shares tend to be EPS and equity dilutive for the issuing company.
   

• The main promoter Lenin Krishnamoorthy Balamanikandan holds 49.30 lakh shares representing 56.35% of the total shareholding. Among the promoter group, Sarvanakumar Ramya holds 11.64 lakh shares (13.30%), Lenin Krishnamoorthy holds 1.08 lakh shares (1.23%), L Anthoniammal holds 0.88 lakh shares (1.01%) and Navaneethakrishnan Sarladevi holds 12.65 lakh shares (14.66%).

While Share India Capital Services Private Ltd will be the lead manager to the issue, Purva Share Registry India Private Limited will be the registrar to the issue.

Financial highlights of Krishca Strapping Solutions Ltd

The table below captures the key financials of Krishca Strapping Solutions Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has had a rather tumultuous impact of the pandemic on its numbers and that is shown in the low sales resulting in deep losses in the previous two years. For the steel industry, scale is extremely critical and when operations are forced to run below the scale then fixed costs are not fully absorbed. That not only led to losses, but also has resulted in negative net worth in the previous two years due to consistent losses reported.

Due to the accumulated losses of the past, the company had negative reserves and surplus of Rs3.12 crore against the share capital of Rs3.01 crore. Hence, the entire net worth had been wiped out to negative zone. That was in FY21. In FY22, the base share capital was raised to Rs3 crore and the profits made in the year also reduced the negative reserves from Rs3.13 crore to Rs1.62 crore. However, the negative net worth will remain an overhang for the stock in the coming months and that could weight on the valuations too.

For FY22, while the sales have doubled, the cost of raw materials have also gone up by more than 85%, so the cost leverage is almost nil for the company. That is likely to keep the operating margins under pressure in the coming quarters too, unless the cost of raw materials come down appreciably. Investors must await the price announcement and then look at the price in terms of the value generated.