What you must know Vinyas Innovative Technologies IPO?

Vinyas Innovative Technologies Ltd was incorporated in 2001, and provides design, engineering, and electronics manufacturing services catering services. It broadly caters to the to global Original Equipment Manufacturers (OEM) and Original Design Manufacturers (ODM) in the electronics segment. It offers a choice of Build to Print (B2P) and Build to Specification (B2S) services to clients. In the B2P model, the client providing the design for the product and the company only manufactures. In the B2S model, the company also uses its own deign capabilities and then manufactures to specifications. Its key products like printed circuit boards (PCB) and box builds, find application in flight cockpits, inflight systems, landing systems, and medical diagnostic equipment. Being a preferred partner to a number of its clients, the company also offers supply chain management, testing solutions and after-market support to its clients.

Key terms of the Vinyas Innovative Technologies IPO (SME)

Here are some of the highlights of the Vinyas Innovative Technologies IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 27th September 2023 and closes for subscription on 03rd October 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book build issue. The issue price band has been fixed between ₹162 and ₹165 per share. The eventual price discovery for the IPO will happen through the process of book building.
   
• The IPO of Vinyas Innovative Technologies Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. 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, Vinyas Innovative Technologies Ltd will issue a total of 33,12,800 shares (33.13 lakh shares approximately). At the upper end of the price band at ₹165 per share, the total value of the fresh issue portion aggregates to ₹54.66 crore.
   
• Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. As a result, the total issue size of Vinyas Innovative Technologies Ltd will also entail the issue and sale of 33,12,800 shares (33.13 lakh shares approximately). At the upper price band of ₹165 per share, the total size of the IPO of Vinyas Innovative Technologies Ltd will be₹54.66 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,66,400 shares. The market maker for the issue will be Gretex Share Broking 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 Narendra Narayan, Meera Narendra, and Sumukh Narendra. The promoter holding in the company currently stands at 39.87%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 29.37%.
   
• The fresh issue funds will be used by the company for funding its working capital gaps and for general corporate expenses. Since the company operates on an order basis, working capital is the real challenge for the company.
   
• While Sarthi Capital Advisors Private Ltd will be the lead manager to the issue, Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue will be Gretex Share Broking Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 86,400 shares for the market maker for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be distributed between the retail investors and the HNI / NII investors. The table below captures the gist of the IPO allocation to various categories.

The minimum lot size for the IPO investment will be 800 shares. Thus, retail investors can invest a minimum of ₹1,32,000 (800 x ₹165 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 1,600 shares and having a minimum lot value of ₹2,64,000. 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 Vinyas Innovative Technologies IPO (SME)

The SME IPO of Vinyas Innovative Technologies Ltd IPO opens on Wednesday, September 27th, 2023 and closes on Tuesday, October 03rd, 2023. The Vinyas Innovative Technologies Ltd IPO bid date is from September 27th, 2023 10.00 AM to October 03rd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 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 Vinyas Innovative Technologies Ltd

The table below captures the key financials of Vinyas Innovative Technologies Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of just over 3% in the current year, with the margins much lower in the previous year. But that is the nature of the EMS business where companies thrive on volumes and less on margins. The sales growth in the last 2 years has been rather slow. However, the ROE is attractive in the latest year at around 15% and the economics should improve further if the company is able to sweat its assets at a consistently good rate as it is likely to be able to do once the sales momentum picks up. It is already above 1  as measured by the asset turnover ratio.

In terms of P/E, the stock does look reasonable at single-digit valuations, which is quite reasonable for the EMS space, which traditionally has commanded a much higher premium. The real trigger will be the ability to hold net margins in the range of 3% to 4% and to gradually improve the ROE towards 20%. That would make the stock interesting, although investors must still take a longer term view and be prepared for higher levels of risk.