What you must know about GEM Enviro Management IPO?

About GEM Enviro Management Ltd

GEM Enviro Management Ltd was incorporated in the year 2013, specialized in waste management with primary focus on recycling all packaging waste, including plastic waste. The waste management services of GEM Enviro Management Ltd can be classified into several sub-verticals. It includes; EPR consultancy & fulfilment for plastic waste, collection & recycling of industrial plastic waste, marketing of recycled products as well as focused consultancy and value added advisory services in ESG consulting and in BRSR (Business Responsibility and Sustainability Reporting). The company has also undertaken a number of general awareness programs to educate people about the appropriate plastic waste disposal and recycling methods and its larger benefits from an environmental perspective and also from a business perspective. This is now a continuous process and is also used as a marketing value added tool to reach out to its customers with recycled products. 

Under the ESG consulting sub-vertical; the company offers the full suite comprising of assessing current ESG practices, identifying areas for improvement, and integrating sustainability into core business operations. This is done through a number of initiatives like ESG audits, stakeholder engagement, materiality assessments, benchmarking etc. GEM Enviro Management Ltd currently has a roster of more than 100 clients spread across a number of key industries like food & beverages, FMCG, cement, fertilizers, consumer goods, metals etc. Varun Beverages, India’s largest soft drink bottler, is also one of the major clients of the company. Its services are offered across the suite to its various clients, with a focus on continuous client share penetration. GEM Enviro Management Ltd currently employs over 51 personnel on its rolls.

Highlights of the GEM Enviro IPO

Here are some of the highlights of the GEM Enviro IPO on the SME segment of the Bombay Stock Exchange (BSE). 

•    The issue opens for subscription on 19th June 2024 and closes for subscription on 21st June 2024; both days inclusive.

•    The stock of GEM Enviro Management Ltd has a face value of ₹5 per share and it is a book building issue. The price band for the book building issue is set in the range of ₹71 to ₹75 per share. The final price will be discovered in this price band only.

•    The IPO of GEM Enviro Management Ltd has a fresh issue component and also an offer for sale (OFS) component in the public issue. While the fresh issue portion is EPS dilutive and equity dilutive, OFS is just a transfer of ownership and  hence it is neither EPS dilutive nor is it equity dilutive.

•    As part of the fresh issue portion of the IPO, GEM Enviro Management Ltd will issue a total of 14,97,600 shares (14.976 lakh shares), which at the upper band IPO price of ₹75 per share aggregates to fresh fund raising of ₹11.23 crore.

•    The offer for sale (OFS) portion of the IPO entails the offer / sale of a total of 44,92,800 shares (44.928 lakh shares), which at the upper band IPO price of ₹75 per share aggregates to total OFS size of ₹33.70 crore.

•    The offer for sale of 44.928 lakh shares will be entirely by the promoter group. Among the promoters offering shares, the break up is as under: Sachin Sharma (11.232 lakh shares), Sangeeta Parekh (9.296 lakh shares), BLP Equity Research Private Ltd (13.168 lakhs shares), and Sarthak Agarwal (11.232 lakh shares). 

•    As a result, the overall IPO size will also comprise of the fresh issue and offer for sale of a total of 59,90,400 shares (59.904 lakh shares) which at the upper band of the IPO price at ₹75 per share will aggregate to overall IPO size of ₹44.93 crore.

•    Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,42,400 shares. Share India Securities Ltd will be the market maker 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 Sachin Sharma, Sangeeta Parekh, Dinesh Parekh, Sarthak Agarwal, and BLP Equity Research Private Ltd. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.44%.

•    The fresh issue funds will be used by the company towards funding the working capital gaps in the regular operations of the company. Part of the funds will also be used for general corporate purposes. 

•    Share India Capital Services Private Ltd and Fintellectual Corporate Advisors Private Ltd will be the joint lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Share India Securities Ltd.

The IPO of GEM Enviro Management Ltd will be listed on the SME IPO segment of the BSE.

GEM Enviro IPO Key Dates

The BSE SME IPO of GEM Enviro Management Ltd IPO opens on Wednesday, 19th June 2024 and closes on Friday, 21st June 2024. The GEM Enviro Management Ltd IPO bid date is from 19th June 2024 at 10.00 AM to 21st June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 21st 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 June 25th 2024, will be visible to investors under the ISIN Code – (INE0RUJ01013). 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.

GEM Enviro Management IPO allocation and minimum investment lot size

GEM Enviro Management Ltd has already announced the market maker allocation at 3,42,400 shares as inventory for market making. Share India Securities Ltd will be the market maker for the IPO. The breakdown of the overall IPO of GEM Enviro Management IPO in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹1,20,000 (1,600 x ₹75 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 3,200 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 is no maximum size limit for HNI applicants in an SME IPO. Let us now turn to the financial highlights of the IPO of GEM Enviro Management Ltd. The company has reported numbers up to the close of fiscal year FY23 (Year ended March 2023); and for the 9 months of FY24 till December 2023.

Financial highlights: GEM Enviro Management Ltd

The table below captures the key financials of GEM Enviro Management Ltd for the last 3 completed financial years. 
 

Data Source: Company DRHP filed with SEBI

The sales growth in the last 3 years has been steady and growing almost at an even pace. The FY23 sales are nearly 70% higher than the FY21 sales. With the net profits growing steadily, the PAT margins are at 23.56% in the latest year, and with steady net margins at around that level for the last 2 years also. For FY24, the ROE stood at 41.54% and the ROA at 28.02% with both being above average for the industry. These ratios have also been steady over the last 3 years. The sweating ratio, as calculated by the asset turnover ratio, is robust at 1.19X in the latest year. While this is largely a service oriented industry, the margins may matter more than the asset turnover ratio; but ratios are overall robust nevertheless. More importantly, the performance of the company has been growing at a steady pace over the last 3 years and the margins have been quite steady in the last couple of years.

The company has latest year EPS of ₹4.75 and we have not included the weighted  average EPS, since the growth has been quite steady and calibrated. The latest year earnings are being discounted by the IPO price of ₹75 per share at 15-16 times P/E ratio, which is fairly reasonable if you consider the steady growth and the robust margins of the company. Let us also look at how the picture changes if we extrapolate the FY24 numbers. The EPS for the first 9 months of FY24 stands at ₹3.99 per share and if that is annualized, it comes to ₹5.32 per share. This extrapolated FY24 price discounts the IPO price of ₹75 at a more sober P/E ratio range of 14X. 

The company also comes to the table with some qualitative advantages. Its large client base, exiting profile with clients and the service model is intrinsically likely to grow in the coming years. Above all, despite being a small company, its growth and margins are very steady at robust levels. Investors with a risk appetite can look to participate in the IPO, but they may have a longer wait as valuations will depend on quarterly earnings traction. The pricing at the current juncture looks to be fair and may not leave much on the table for the short term. However, this could be an interesting play for the long haul investors in the IPO.