What you must know about the Master Components IPO?

Master Components Ltd was incorporated in the year 1999 and is engaged in the manufacture of plastic engineering components and sub-assemblies. Its primary business is the molding of materials to produce new components for electrical, medical, industrial, and automotive sector applications. Among the specific molding products made by Master Components Ltd are Thermoplastic Injection Molding, Thermoset Injection Molding, Thermoset transfer molding and Compression Molding. The company has a manufacturing facility in Nashik, Maharashtra, which has a capacity ranging from 60 to 450 tonnes and the range of the product models go from 1 gram to 1,500 grams. It has 120 employees, of which 25 are full time employees on its rolls, while the rest are on contract basis. Master Components Ltd has 3 factories an also owns Master Mould Private Ltd, a designing and manufacturing company for all types of injection, compression, and transfer molds.

Key terms of the Master Components IPO (SME)

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

• The issue opens for subscription on 18th September 2023 and closes for subscription on 21st 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 for the fresh issue IPO has been fixed at ₹140 per share. Since it is not a book built issue, there is no question of any price discovery in this case.
   
• The IPO of Master Components Ltd has a fresh issue component and also an 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, Master Components Ltd will issue a total of 7,00,800 shares (7.01 lakh shares approximately), which at the fixed IPO price of ₹140 per share aggregates to a total fund raising of ₹9.81 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, there will be a total sale of an equivalent 4,03,200 shares (4.03 lakh shares approximately), which at the fixed IPO price of ₹140 per share aggregates to a total OFS size of ₹5.64 crore. The entire OFS sale of 4.03 lakh shares will be done by two promoters of the company, Mudduraj Kulkarni and Shrikant Joshi.
   
• As a result, the total issue size of Master Components Ltd will entail the issue and sale of 11,04,000 shares (11.04 lakh shares), which at the fixed IPO price of ₹140 per share aggregates to a total fund raising of ₹15.46 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 57,600 shares. The market maker for the issue is Aryaman Capital Markets 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 Mudduraj Kulkarni, Shrikant Joshi, Rajeshwari Kulkarni and Anagha Joshi. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will get diluted to 72.41%.
   
• The fresh issue funds will be used by the company for meeting its working capital needs and for general corporate expenses. Part of the funds will also be applied towards the cost of the fund raising.
   
• While Aryaman Financial Services Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Aryaman Capital Markets Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 57,600 shares for the market maker, Aryaman Capital Markets Ltd for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be equally distributed between the retail investors and the non-retail investors. Here, the non-retail investors predominantly comprise of the HNI / NII category and to a lesser extent of the institutional category also.

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (1,000 x ₹140 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 ₹280,000. 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 Master Components Ltd IPO (SME)

The SME IPO of Master Components Ltd IPO opens on Monday, September 18th, 2023 and closes on Thursday, September 21st, 2023. The Master Components Ltd IPO bid date is from September 18th, 2023 10.00 AM to September 21st, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 21st, 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 Master Components Ltd

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

Data Source: Company DRHP filed with SEBI

Here are some key takeaways from the financial numbers of Master Components Ltd as captured below.

• The company has reported net margins of 8.18% in the current year, whereas in previous years the net margins were consistently around 5%. It remains to be seen at what level the net margins can be sustained, since the overall net margins in the commodity nature of business are generally in single digits only.
   
• The return on equity is relatively more attractive at 14.68%, but again, that is only true of the latest year with the ROE being in single digits in the previous years. So, here again it will boil down to what level of ROE is actually sustainable. The sustainable level of ROE will eventually be a key input in the P/E ratio.
   
• The P/E ratio based on the latest financial numbers are in the range of 26-28X. That is a relatively rich P/E for the commoditized business and that does raise a question on whether there would be something on the table for the investor, or it needs a wait.

The sum and substance here is that there may not be much scope on the table for the investors on listing and they may have to wait for a longer time and also assume a higher level of risk in this IPO. For now, the pricing makes the stock look fully valued and that is something for the investors to keep in mind.