What you must know about ABS Marine Services IPO?

About ABS Marine Services Ltd

ABS Marine Services Ltd was incorporated in 1992 to manage offshore shipping vessels. The company currently owns 5 vessels; which include 2 ultra-modern offshore vessels for the hydrocarbons sector (oil & gas) and 3 additional harbour vessels for providing services to the Indian port sector. Under the overall aegis of ABS Marine Services Ltd, the business units are divided across 4 verticals. These include Ship Ownership, Ship Management, Marine Services, and Port Services. While it owns 5 vessels, ABS Marine Services Ltd currently manages 12 vessels on behalf of the government as well as the public sector and the private sector combined. In addition, ABS Marine Services Ltd also provides crew management services for an additional 24 vessels, which include oil tankers, bulk carriers, gas tankers  etc.

Over the last 32 years that the company has been in this business, ABS Marine Services Ltd has not only fine-tuned its business model, but also nurtured relationship with the government, the PSU sector, and the private sector. The company provides a full range of vessels including offshore supply vessels, anchor handling supply vessels, marine research vessels, coastal research vessels, oceanographic fisheries research vessels, high speed craft and harbour vessels. The company has main offices located at Mumbai and Chennai with a branch in Kochi and satellite office in Kakinada; all port destinations.

Highlights of the ABS Marine Services IPO

Here are some of the highlights of the ABS Marine Services IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 10th May 2024 and closes for subscription on 15th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹140 to ₹147 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of ABS Marine Services Ltd has only a fresh issue component and no 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, ABS Marine Services Ltd will issue a total of 65,50,000 shares (65.50 lakh shares approximately), which at the upper band IPO price of ₹147 per share aggregates to fresh fund raising of ₹96.29 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 65,50,000 shares (65.50 lakh shares) which at the upper band IPO price of ₹147 per share will aggregate to overall IPO size of ₹96.29 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 4,10,000 shares. Giriraj Stock Broking Private Ltd and Commodity Mandi Private Ltd will be joint market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Captain P B Narayanan, Sreelatha Narayanan, Arathi Narayanan and Captain Jeevan Krishnan Sanjeevan. The promoter holding in the company currently stands at 86.50%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 63.42%.
   
• The fresh issue funds will be used by the company towards the acquisition of offshore vessels for expanding its business franchise as well as to meet working capital needs of the business in the future.
   
• GYR Capital Advisors Private Ltd will be the lead manager to the issue, and Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is Giriraj Stock Broking Private Ltd and Commodity Mandi Private Ltd.

The IPO of ABS Marine Services Ltd will be listed on the SME IPO segment of the NSE.

ABS Marine Services IPO – Key Dates

The SME IPO of ABS Marine Services Ltd IPO opens on Friday, 10th May 2024 and closes on Wednesday, 15th May 2024. The ABS Marine Services Ltd IPO bid date is from 10th May 2024 at 10.00 AM to 15th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 15th May 2024.

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. The credit of shares to the demat account on May 17th 2024, will be visible to investors under the ISIN Code – (INE0QRV01016). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

ABS Marine Services Ltd has already announced the market maker allocation at 4,10,000 shares as inventory for market making. Giriraj Stock Broking Private Ltd and Commodity Mandi Private Ltd will be the joint market makers for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of ABS Marine Services Ltd in terms of allocation to various categories are captured in the table below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹1,47,000 (1,000 x ₹147 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 ₹2,94,000. 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.

Financial highlights: ABS Marine Services Ltd

The table below captures the key financials of ABS Marine Services Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years. This is one of the few IPOs to have already reported FY24 results.

• The revenues have grown at a robust pace in the last 2 years and in the latest year FY24, the total sales more than doubled over FY22. That is robust growth in top line over the last two years. More importantly, this has been accompanied by sharp growth in the net profit levels as well as net profit margins (PAT margins).
   
• While net margins of the company have been relatively volatile, they have stabilized in the latest year at close to 16.5%. The return on equity (ROE) has grown sharply to 15.74% in the latest year FY24, while the ROA is robust at 12.65% in FY24.
   
• The asset turnover ratio or the sweating ratio has been low at 0.77X and that is understandable considering the capital intensity of the business. However, this sweating ratio also gets largely rectified by the robust levels of ROE and the return on assets (ROA).

The company has latest year EPS of ₹10.81 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹147 per share at 13-14 times P/E ratio. One has to look at the P/E ratio from two perspectives. Since the company has already announced the FY24 results, there are not forwards results available to extrapolate. What one must understand here is that ABS Marine Services Ltd provides services to the industry that are largely specialized and there not too many alternatives. ROE will be a challenge in the business due to high capital base. It is an asset-heavy business model, so the investor will have to keep a tab on the ROE and ROA on a continuous basis. However, the business model is focused with a moat and the valuations are attractive. Investors can look at the stock from a one-year perspective.