What you must know about Kay Cee Energy & Infra IPO?

Kay Cee Energy & Infra Ltd was incorporated in the year 2015 to provide services to the construction and commissioning of electricity transmission and distribution systems. The company basically caters to the power sector in India. Kay Cee Energy & Infra Ltd undertakes engineering, procurement, and construction (EPC) projects for government entities. One of its key clients is the Rajasthan Rajya Vidyut Prasaran Nigam Ltd. Kay Cee Energy & Infra Ltd has a rather wide business portfolio encompassing handling, erection, testing, and commissioning of equipment and materials for power transmission and distribution systems. This also includes laying of transmission lines, substation construction, automation, as well as extension of existing power systems.

In addition, Kay Cee Energy & Infra Ltd  also offers services customised to the operation and maintenance of 132 KV substations, as well as the maintenance of substations up to the 400 KV level. In addition, the company also handles the maintenance of EHV Lines up to the 765 KV level. This includes the use of emergency restoration system (ERS) for maintenance in the event of faults, disruptions, power supply cuts etc. Kay Cee Energy & Infra Ltd offers a 360-degree product offering with its integrated model covering the entire gamut of activities from conception to completion of the project. Currently, the company is executing 15 projects with total order value of ₹550 crore. Its manpower strength of 175 persons is largely comprised of skilled workers, developed through in-house training and resourcing.

Key terms of the SME IPO of Kay Cee Energy & Infra Ltd

Here are some of the highlights of the Kay Cee Energy & Infra IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 28th December 2023 and closes for subscription on 02nd January 2024; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price band for the IPO has been fixed in the range of ₹51 to ₹54 per share. Being a book built issue, the final price will be discovered in the above band, through book building.
   
• The IPO of Kay Cee Energy & Infra Ltd has only a fresh issue component and no offer for sale (OFS) portion. Obviously, 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 portion of the IPO, Kay Cee Energy & Infra Ltd will issue a total of 29,50,000 shares (29.50 lakh shares), which at the upper band IPO price of ₹54 per share aggregates to a fresh fund raising of ₹15.93 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 total IPO size will also comprise of the issue of 29,50,000 shares (29.50 lakh shares) which at the upper IPO band price of ₹54 per share will aggregate to overall IPO size of ₹15.93 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,90,000 shares. The market maker for the issue is yet to be finalized and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Lokendra Jain and Shalini Jain. The promoter holding in the company currently stands at 96.12%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 70.25%.
   
• The fresh issue funds will be used by the company for funding its working capital gaps. Part of the monies raised will also go towards meeting the general corporate expenses of the company.
   
• GYR Capital Advisors 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 yet to be announced.

IPO allocation and minimum lot size for investment

Kay Cee Energy & Infra Ltd has allocated 6.44% of the issue size for the market makers to the issue. The net offer (net of market maker allocation) will be divided between the retail investors, QIBs and HNI / NII investors. The breakdown of the overall IPO of Kay Cee Energy & Infra Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹108,000 (2,000 x ₹54 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 4,000 shares and having a minimum lot value of ₹216,000. 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.

Key dates to be aware of in the Kay Cee Energy & Infra Ltd IPO (SME)

The SME IPO of Kay Cee Energy & Infra Ltd IPO opens on Thursday, December 28th, 2023 and closes on Tuesday, January 02nd, 2024. The Kay Cee Energy & Infra Ltd IPO bid date is from December 28th, 2023 10.00 AM to January 02nd, 2024 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is January 02nd, 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 January 04th 2024, will be visible to investors under the ISIN Code – (INE0RCG01017).

Financial highlights of Kay Cee Energy & Infra Ltd

The table captures the key financials of Kay Cee Energy & Infra Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue growth has been strong in the last two years, and the profit margins have also consistently improved over the  last three years. Even the ROE at over 25% and ROA at over 6.8% are at attractive levels to be able to justify valuations.
   
• The asset turnover ratio or the asset sweating ratio has been below 1 all through despite the profit margins being quite good. This is a capital intensive business and that is likely to put pressure on the asset turnover ratio. This could be a challenge for growing the profits and ROE in the future.

The company has latest year EPS of ₹7.11 which discounts the IPO price at a P/E ratio of 7.59 times times, which looks reasonable. However, a lot will depend on the company being able to sustain the growth rate and the net margins and ROE at healthy levels. Above all, to justify the stock valuations in future, the asset sweating ratio must go above 1. This is a stock that investors must view as a high risk proposition with a longer term holding.