What you must know about GP Eco Solutions India IPO?

GP Eco Solutions India Ltd (GPES Solar) – About the company

GP Eco Solutions India Ltd (GPES Solar) was founded in the year 2010 to offer services pertaining to solar inverters and solar panels. GP Eco Solutions India Ltd (GPES Solar) offers the full suite of solar energy solutions. This includes comprehensive engineering, procurement, and construction (EPC) services to commercial and residential customers. In addition, the company also distributes hybrid solar inverters and lithium ferro-phosphate (LFP) batteries. These are marketed currently through its proprietary "Invergy" brand. The Invergy brand is active in the OEM (original equipment manufacturer) manufacturing of hybrid and LFP products. The products that the company specializes in include solar panels, solar inverters and storage solutions customized for solar energy. In terms of the suite of services offered, GP Eco Solutions India Ltd (GPES Solar) provides initial consultation, site assessment & feasibility study, customized system design, and proposal and contracting. The company is based out of Noida in the state of Uttar Pradesh.

Highlights of the GP Eco Solutions India Ltd (GPES Solar) SME IPO

Here are some of the highlights of the GP Eco Solutions India Ltd (GPES Solar) IPO on the SME segment of the National Stock Exchange (NSE). 

• The issue opens for subscription on 14th June 2024 and closes for subscription on 19th 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 price for the book building issue is set in the price band of ₹90 to ₹94 per share. Being a book built issue, the final price will be discovered within this band.
• The GP Eco Solutions India (GPES Solar) IPO 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, GP Eco Solutions India Ltd (GPES Solar) will issue a total of 32,76,000 shares (32.76 lakh shares), which at the upper band IPO price of ₹94 per share aggregates to fresh fund raising of ₹30.79 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 32,76,000 shares (32.76 lakh shares) which at the upper band IPO price of ₹94 per share will aggregate to overall IPO size of ₹30.79 crore.
• Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 3,27,600 shares as quota for market inventory. SS Corporate Securities 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 Deepak Pandey, Anju Pandey, and Astik Mani Tripathi. The promoter holding in the company currently stands at 86.40%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 62.23%.
• The fresh issue funds will be used by the company for investing in its subsidiary, Invergy India Private Ltd for purchase of plant & machinery and towards civil construction costs and also to meet the working capital needs A small part of the IPO proceeds has also be set aside for general corporate purposes.
• Corporate Capitalventures Private 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 SS Corporate Securities Ltd.

The IPO of GP Eco Solutions India Ltd (GPES Solar) will be listed on the SME IPO segment of the NSE.

GP Eco Solutions India Ltd (GPES Solar) IPO – Key Dates

The SME IPO of GP Eco Solutions India Ltd (GPES Solar) IPO opens on Friday, 14th June 2024 and closes on Wednesday, 19th June 2024. The GP Eco Solutions India Ltd (GPES Solar) IPO bid date is from 14th June 2024 at 10.00 AM to 19th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 19th June 2024.

Data Source: Company RHP

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 21st 2024, will be visible to investors under the ISIN Code – (INE0S7E01015). 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

GP Eco Solutions India Ltd (GPES Solar) has announced a market maker allocation of 3,27,600 shares, which will be used as inventory for market making. SS Corporate Securities Ltd will be the market maker 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 GP Eco Solutions India Ltd (GPES Solar) in terms of allocation to various categories are captured below.
 

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,12,800 (1,200 x ₹94 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 2,400 shares and having a minimum lot value of ₹2,25,600. 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 GP Eco Solutions India Ltd (GPES Solar).

Financial highlights: GP Eco Solutions India Ltd (GPES Solar)

The table below captures the key financials of GP Eco Solutions India Ltd (GPES Solar) for the last 3 completed financial years. 
 

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

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 been fairly steady in terms of growth. However, if you look at the sales of FY23 and compare with FY21, then the net revenues have more than doubled in this 2-year period. That is a robust story. However, net profits have shown moderate growth traction; which is evident in the tepid PAT margins.
• While net margins of the company are modest at 3.65% in the latest year, the margins have grown modestly in the last 3 years. The return on equity (ROE) stands at 44.84% in FY23, while the return on assets (ROA) is robust at 7.84% in FY23. The numbers have been fairly steady in the last 3 years.
• The asset turnover ratio or the sweating ratio has been robust in the latest year at 2.15X and that is good considering the capital intensity and the risks of the business. However, this sweating ratio also gets supported by the robust levels of return on assets (ROA) at 7.84%. We need to wait for a more sustainable number to be able to take a call.
• The company has latest year EPS of ₹5.14 and we have not included the weighted  average EPS, since the growth has been quite steady. The latest year earnings are being discounted by the IPO price of ₹94 per share at 18-19 times P/E ratio. That looks slightly on the higher, especially if you consider the consistently tepid net margins on the stock. The data is, however, only up to FY23 and if you take the 9 months EPS for FY24 of ₹6.57, then it gives an annualized EPS of ₹8.76. Now, on this extrapolated earnings if you look at the IPO price of ₹94 per share, then the P/E valuation is closer to the range of 10-11 times earnings. That sounds more reasonable valuations for the current level of ROE and net margins.
• To be fair, GP Eco Solutions India Ltd (GPES Solar) some bring some intangible advantages to the table. It has built long and deep relationships with marquee brands in the OEM segment to who it directly offers these services. The distributorship of Sungrow, Saatvik, and Longi is another advantage for the company. Investors must be conscious of the inherent risks in this type of business. However, this is an industry that has a huge market and can give good returns in the coming years, especially with the expansion of the solar portfolio in India. Investors in the IPO must be prepared for a higher level of risk and a waiting period of over a year on this IPO.