What you must know about Pratham EPC Projects IPO?

About Pratham EPC Projects Ltd

Pratham EPC Projects Ltd was incorporated in the year in order to provide end-to-end services to oil and gas utilities in India. Some of the areas of specialization of Pratham EPC Projects Ltd  include integrated engineering, procurement, construction, and commissioning. Pratham EPC Projects Ltd undertakes elaborate gas pipeline projects including welding, testing, and commissioning. Its forte lies in oil and gas pipelines and offshore water distribution projects. Pratham EPC Projects Ltd is into tendering and management of such projects. The company, till date, has completed 12 projects with order value of ₹131.84 crore. It has an order book of nearly ₹407 crore with across its projects under execution. The company has around 770 employees across its various projects as well as its administrative functions.

Key terms of the Pratham EPC Projects IPO

Here are some of the highlights of the Pratham EPC Projects IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 11th March 2024 and closes for subscription on 13th March 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book building issue. The price for the book building issue is set in the price band of ₹71 to ₹75 per share. Being a book built issue, the price will be discovered in the above band.
   
• The IPO of Pratham EPC Projects Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership.
   
• As part of the fresh issue portion of the IPO, Pratham EPC Projects Ltd will issue a total of 48,00,000 shares (48.00 lakh shares), which at the upper band of IPO price of ₹75 per share aggregates to fresh fund raising of ₹36.00 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 overall IPO size will also comprise of the issue of 48,00,000 shares (48.00 lakh shares) which at the upper band IPO price of ₹75 per share will aggregate to overall IPO size of ₹36.00 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,40,000 shares. Spread X Securities Private 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 Nayan Kumar Pansuriya and Pratik Kumar Maganlal Vekariya. 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 72.97%.
   
• The fresh issue funds will be used by the company for the purchase of machinery at its operating plant. In addition, some part of the funds will also be allocated towards working capital needs and for general corporate purposes.
   
• Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and Link Intime India Private Ltd will be the registrar to the issue. The market maker for the issue is Spread X Securities Private Ltd.

Pratham EPC Projects IPO allocation and minimum lot size for investment

Pratham EPC Projects IPO has already announced the market maker allocation at 2,40,000 shares as inventory for market making. Spread X Securities 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, the QIB investors and the HNI / NII investors. The breakdown of the overall IPO of Pratham EPC Projects 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 1,600 shares. Thus, retail investors can invest a minimum of ₹120,000 (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.

Key dates to be aware of in the Pratham EPC Projects IPO (SME)

Pratham EPC Projects IPO opens on Monday, 11th March 2024 and closes on Wednesday, 13th March 2024. The Pratham EPC Projects Ltd IPO bid date is from 11th March 2024 at 10.00 AM to 13th March 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 13th March 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 March 15th 2024, will be visible to investors under the ISIN Code – (INE0QA601016).

Financial highlights of Pratham EPC Projects Ltd

The table below captures the key financials of Pratham EPC Projects 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 revenues have been flat in the latest year but grew at nearly 70% in the previous year. The revenues are expected to pick up steam in the coming years as the demand of the oil and gas space also picks up. However, despite the flat revenues in the latest year, the net profits have grown at a steady pace and have grown 7-fold in last 2 years.
   
• Due to the sharp growth in the net profits, the net margins have grown rapidly to a level of 15.22% in FY23, while the ROE (return on equity) and the ROA (return on assets) have also been robust in the latest year at 42.50% and 15.76% in the latest year.
   
• The asset turnover ratio or the sweating ratio has been above 1.00 and that is a good sign that sales have picked up to cover the asset outlays. However, it has fallen in the latest year. With scale, the impact should be visible. In fact, with ROA attractive, lower sweating may still be sustainable.

The company has latest year EPS of ₹5.90 and weighted average EPS of ₹4.23 for the last 3 years. Based on the latest year EPS, the IPO price upper band of ₹75 gets priced at a P/E ratio of 12-13 times which is reasonable for the industry. However, should you consider the annualized half year EPS of ₹8.08 for FY24 based on half-year data, then the extrapolated P/E is around 9-times earnings, which is still fairly attractive. However, one caveat is that any investor investing in the IPO must convince themselves that the EPS can bounce back in the coming years to higher levels. For now, the valuations look attractive at FY24 valuations, but it would depend on profit margins sustaining. Investors in the IPO must be prepared for a higher level of execution risk as well as for a longer waiting period for the stock to perform at full capacity.