What you must know about Divine Power Energy IPO?

About Divine Power Energy Ltd

Divine Power Energy Ltd was incorporated in the year 2001 and is engaged in the manufacture of bare copper wires, bare aluminium wires, bare copper stripes, bare aluminium stripes as well as other products like aluminium strips, copper strips, winding copper, winding aluminium etc. The company sells its fiberglass-covered wires and stripes to markets in Punjab, Bengaluru, and Ahmedabad. The next big market it is exploring is the state of Maharashtra. Its big clients come from the power distribution segment and the manufacturers of transformers. Some of the marquee clients of Divine Power Energy Ltd include names like Tata Power, Pashchimanchal Vidyut Vitaran Nigam, Madhyanchal Vidyut Vitaran Nigam, Dakshinanchal Vidyut Vitaran Nigam, Purvanchal Vidyut Vitaran Nigam, Uttarakhand Power Corporation; among others. The manufacturing facility of Divine Power Energy Ltd  is located at Sahibabad, Ghaziabad spread across an area of 1,777 SQM. The facility has the capacity to handle 300 metric tonnes of aluminium and 400 metric tonnes of copper per month. The company employs 40 personnel on its rolls.

Highlights of the Divine Power Energy IPO

Here are some of the highlights of the Divine Power Energy IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 25th June 2024 and closes for subscription on 27th June 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 book building price band for the IPO has been set in the range of ₹36 per share to ₹40 per share. Being a book built IPO, the final price discovery will happen in the above price band only.

•    The IPO of Divine Power Energy Ltd has only a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion of the IPO, Divine Power Energy Ltd will issue a total of 56,90,000 shares (56.90 lakh shares), which at the upper band IPO price of ₹40 per share aggregates to fresh fund raising of ₹22.76 crore.

•    Since there is no OFS, the fresh issue size will also double as the overall issue. Therefore, the overall IPO size will also comprise of the issue of 56,90,000 shares (56.90 lakh shares) which at the upper band IPO price of ₹40 per share aggregates to overall IPO size of ₹22.76 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 2,88,000 shares as quota for market inventory. Nikunj Stock Brokers Ltd has already been appointed as the market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Rajesh Giri, Vikas Talwar, and Dali Giri. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 73.50%.

•    The fresh issue funds will be used by the company for meeting the working capital requirements of the ongoing business. A small part of the IPO proceeds has also be set aside for general corporate purposes.

•    Khambatta Securities Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

The IPO of Divine Power Energy Ltd will be listed on the SME IPO segment of the NSE.
 

Divine Power Energy IPO – Key Dates

Divine Power Energy IPO opens on Tuesday, 25th June 2024 and closes on Thursday, 27th June 2024. The Divine Power Energy Ltd IPO bid date is from 25th June 2024 at 10.00 AM to 27th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 27th June 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 July 01st 2024, will be visible to investors under the ISIN Code – (INE0SCO01019). 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

Divine Power Energy Ltd has announced a market maker allocation of 2,88,000 shares, which will be used as inventory for market making. Nikunj Stock Brokers Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Divine Power Energy Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹1,20,000 (3,000 x ₹40 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 6,000 shares and having a minimum lot value of ₹2,40,000. 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.

There are no upper limits for investments by HNIs / NIIs in the IPO of Divine Power Energy Ltd.

Financial highlights: Divine Power Energy Ltd

The table below captures the key financials of Divine Power Energy 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; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have growth at a steady clip, with FY24 revenues over 81% above the revenues of FY22. As net profit traction has picked up in the last 2 years, the net profit margins have improved from 0.66% to 2.88% between FY22 and FY24. 

•    While net margins of the company have been relatively tepid at 2.88%, the margins have also shown growth traction in recent years. However, in absolute terms, the PAT margins remain weak. However, return on equity (ROE) stands robust at 25.06% in FY24, while the return on assets (ROA) is modest at 7.21% in FY23. Both are up sharply from the previous two years.

•    The asset turnover ratio or the sweating ratio has been very healthy in the latest year at 2.51X and that only gets further accentuated when you look at the modest to healthy ROA. It remains to be seen how the additional capital base is handled by sales growth.

The company has latest year EPS of ₹4.06, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹40 per share at 9-10 times P/E ratio. That looks on the higher side, although the growing net profit margins and the ROE should be positive. Since the FY24 earnings are already considered, there is not extrapolation that can happen at this juncture. The valuations look a compelling if the recent growth in the net margins and the ROE are taken into consideration.

To be fair, Divine Power Energy Ltd some bring some intangible advantages to the table. It has established relationships and strategic partnerships to provide high quality solutions to its customers. The track record is consistent and the business model is also scalable at a low cost. For now, the pricing of the IPO looks reasonable if you consider the FY24 numbers. Investors can look at the IPO from a longer term perspective and a holding period of at least one year. Of course, investors must be prepared for the higher risk implicit in such IPO stocks; but the business model looks robust and also stable.