What you must know about Kataria IPO: Price Band ₹91 to ₹96 per Share

About Kataria Industries Ltd 

Kataria Industries Ltd was incorporated in the year 2004 to engage in the manufacture and supply of low-relaxation pre-stressed concrete (LRPC) Strands and Steel Wires. In addition, the company also supplies post-tensioning (PT) anchorage system (including anchor cone, anchor head, and wedges), HDPE Single-Wall Corrugated (SWC) Sheathing Ducts etc. These products are supplied to a range of industries like infrastructure (roads, bridges), railways, atomic reactors, LNG Tanks, power transmission lines, high-rise buildings etc. The company currently has 2 manufacturing plants located at Ratlam in the state of Madhya Pradesh. Bot these facilities can handle manufacturing and testing. Kataria Industries Ltd caters to the domestic market and also to the international market, especially countries like United Arab Emirates, Qatar, Nepal, Iran, Oman, Bahrain, and Brazil. The company currently employs 71 personnel on its rolls across various functions and verticals. 
 

Highlights of the Kataria Industries Ltd SME IPO

Here are some of the highlights of the Kataria Industries IPO on the SME segment of the National Stock Exchange (NSE).

•    The issue opens for subscription on 16th July 2024 and closes for subscription on 19th July 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 ₹91 to ₹96 per share. The final price discovery will happen in the above price band only.

•    The IPO of Kataria Industries 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, Kataria Industries Ltd will issue a total of 56,85,000 shares (56.85 lakh shares), which at the upper band IPO price of ₹96 per share aggregates to fresh fund raising of ₹54.58 crore.

•    Since there is no offer for sale, the fresh issue will also double up as the overall size of the IPO. Therefore, the overall IPO size will also comprise of the issue of 56,85,000 shares (56.85 lakh shares) which at the upper band IPO price of ₹96 per share aggregates to overall IPO size of ₹54.58 crore.

•    Like every SME IPO, this issue also has a market making portion. The exact number of market making shares and the name of the market maker is yet to be announced by the company for the IPO. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Sunil Kataria, Arun Kataria, and Anoop Kataria. 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 73.60%.

•    The fresh issue funds will be used by the company for capital expenditure for plant and machinery as well as for repayment of debt. A small part of the IPO proceeds has also be set aside for general corporate purposes. 

•    Interactive Financial Services 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 yet to be announced officially by the company.
The IPO of Kataria Industries Ltd will be listed on the SME IPO segment of the NSE.

Kataria Industries IPO – Key Dates

The SME IPO of Kataria Industries IPO opens on Tuesday, 16th July 2024 and closes on Friday, 19th July 2024. The Kataria Industries IPO bid date is from 16th July 2024 at 10.00 AM to 19th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 19th July 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 July 23rd 2024, will be visible to investors under the ISIN Code – (INE0SVY01018). 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

Kataria Industries IPO has announced a market maker allocation of 3,31,200 shares, which will be used as inventory for market making. Hem Finlease Private 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 Kataria Industries IPO 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 ₹1,15,200 (1,200 x ₹96 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 ₹2,30,400. 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 Kataria Industries Ltd.

Financial highlights: Kataria Industries Ltd

The table below captures the key financials of Kataria Industries 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 healthy clip, with FY23 revenues nearly doubling over the revenues of FY21. As net profit traction has picked up over the last two years, the net margins have also improved sharply to 11.69% in the latest year.

•    While net margins of the company have been relatively strong at 7.78%, the other return margins have also shown modest traction in latest year. The return on equity (ROE) stands robust at 21.7% in FY24, while the return on assets (ROA) is modest at 5.17% in FY24. Both down from the previous year.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 2.20X and that only gets further accentuated when you look at the modest levels of the ROA. It remains to be seen how the additional capital base is handled by sales growth.

The company has latest year EPS of ₹4.91 for FY23, after adjusting for capital actions. The FY23 earnings are being discounted by the IPO price of ₹96 per share at 19-20 times P/E ratio. That is relatively on the expensive side if you factor in the modest growth in the ROE, net margins, and the return on assets. However, if this growth continues into FY24, then justifying the valuations should not be too difficult. For the first 9 months of FY24, the company has reported EPS of ₹4.95, which gives an annualized EPS of ₹6.60. Now, on the IPO price of ₹96 per share at the upper band, the P/E does look more reasonable at 14-15 times P/E ratio.

To be fair, Kataria Industries Ltd some bring some intangible advantages to the table but it is the next few quarters that will be critical to take a call on whether the valuations can sustain. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years. Also, investors must be prepared for the higher risk implicit in such IPO stocks. Considering the valuations and the commodity nature of the business, investors would be advised to take a cautious decision.