What you must know about the Kundan Edifice IPO

Kundan Edifice Ltd was incorporated in 2010 and it is engaged in the business of manufacturing, assembly and marketing of light emitting diodes (LED) strip lights. Kundan Edifice Ltd is actually a master designer and manufacturer and is classified as an ODM company or an Original Design Manufacturer company. It designs, develops, and also manufactures these LED light strips at its own facilities and then supplies it to other client companies. Then, these companies distribute under their own brands and many of the large brands also avail the services of Kundan Edifice Ltd. In addition, Kundal Edifice Ltd also provides specialized customized products like HV(high voltage) Flex, LV (low voltage) flex, RGB Flex and the complete accessories kit. Kundan Edifice Ltd has two manufacturing and assembly facilities located at Vasai and Bhiwandi in the state of Maharashtra. The company employs over 270 workers in its factories, which includes contract workers.

Kundan Edifice has tried to position the company as a one-stop solution for all the lighting needs. The overall solution offered by Kundan Edifice Ltd to its clients include tech info clarity, drawing design, sample for confirmation, production trails, actual production, branding, packaging, and all relevant logistics management. The products manufactured by Kundan Edifice Ltd find application in areas like cove lighting, profile lighting, car interiors, car exteriors, two-wheelers, indoor decorations, festival decorations, signages, back-lit panel for outdoor advertising, outdoor decorations, underwater lighting, decoration of building facades, lighting for construction demarcation, neon flex lights and other decorative lights and articles for enhancing the feel of homes and offices.

Key terms of the Kundan Edifice SME IPO

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

• The issue opens for subscription on 12th September 2023 and closes for subscription on 15th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price has already fixed for the IPO at ₹91 per share, which includes a premium of ₹81 per share. The fixed IPO price will be used for all analysis purposes.
   
• The IPO of Kundan Edifice Ltd has only a fresh issue component with no book built 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, Kundan Edifice Ltd will issue a total of 27,71,429 shares (27.71 lakhs approximately), which at the fixed IPO price of ₹91 per share aggregates to a total fund raising of ₹25.22 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will comprise of 27.71 lakh shares, which at the fixed IPO price of ₹91 per share will aggregate to ₹25.22 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation. Normally, the market making portion is around 5% of the issue size. However, in this case, the market maker, and the number of shares to be allocated to the market maker are yet to be determined and it will be along with filing of the RHP.
   
• The company has been promoted by Divyansh Gupta and Vijaya Gupta while Mallika Gupta and Shubhang Gupta are also part of the promoter group. The promoter holding (including the promoter group) in the company currently stands at 99%. However, post the fresh issue of shares and the IPO, the promoter equity holding share will be diluted.
   
• The fresh issue funds will be used by the company for meeting the incremental working capital needs as well as for general corporate purposes. Part of the funds raised will also go towards meeting issue expenses.
   
• While Fedex Securities Private Ltd will be the lead manager to the issue, Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue is yet to be officially appointed by the company.

IPO allocation and minimum lot size for investment

The company has broadly apportioned the net IPO equally between the retail investors and the non-retail investors. Now, the non-retail investors predominantly comprise of the HNI / NII investors and to a lesser extent of some select QIB investors also. While the market maker portion is yet to be decided, it is normally around 5% of the total gross issue size. Here is how the break-up of allocation will look like.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,09,200 (1,200 x ₹91 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 ₹2,18,400. 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 Kundan Edifice IPO (SME)

The SME IPO of Kundan Edifice IPO opens on Tuesday, September 12th, 2023 and closes on Friday September 15th, 2023. The Kundan Edifice Ltd IPO bid date is from September 12th, 2023 10.00 AM to September 15th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 185th, 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.

Check Kundan Edifice IPO GMP

Financial highlights of Kundan Edifice Ltd

The table below captures the key financials of Kundan Edifice Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI (FY23 is 9 months annualized)

The company is in a very niche industry that gels with the Make in India initiative of the government. The demand for LED lightings is quite high and being eco-friendly, they also have strong demand traction among the young crowd. What stands out about the company is that over the last 3 years, the company has been consistently doubling its sales each year and that is something that is appreciable, even if it be on a low base. Also, the net margins in the latest year have stabilized at around 10%. This is higher than the 5% margins reported by the company in the previous two years. The latest year has seen return on equity of over 80%, which may not sustain as the equity builds up. Only the latest year ROE is meaningful since till the previous year the company was reported negative reserves and surplus due to defraying of accumulated losses.

How does the stock valuations look like?

How does the stock look on P/E terms? The company has a weighted average EPS of ₹1.48 for the last 3 years while the EPS for the latest year stands at a more realistic ₹8.35, if the annualized EPS of the 9-month period are considered. At a price of 91, the EPS of 8.35 would mean that the IPO is available at a P/E of around 9-=10 times. That is not too expensive, although the real challenge would be how the company maintains the ROE and the net margins over time. However, in terms of the basic business model, the company surely has its bells and whistles in place. Investors should ideally take a view of more than one year on the stock and like most SME IPOs, it would suit the investors with the higher risk appetite only.