What you must know about Ratnaveer Precision Engineering IPO

Ratnaveer Precision Engineering Ltd was incorporated in the year 2002 and the company currently manufactures stainless steel finished sheets, washers, solar roofing hooks, pipes, and tubes. Most of its specialized products are stainless based products. It customizes such stainless products for use in industries like automobiles, solar power, wind energy, power plants, hydrocarbons, pharmaceuticals, plumbing, instrumentation, electromechanics, architecture, building & construction etc. Some of its new product launches include circlip, spring washers, retaining rings, toothed lock washers, serrated lock washers etc. The company produces more than 2,500 washers in different sizes and adhering to international standards. The company is also a star rate export house, recognized by government of India. In the last 5 years, the company has achieved CAGR growth of 75%.

Ratnaveer Precision Engineering has 4 manufacturing units. Out of these,  two manufacturing units i.e., Unit-I and Unit-II are located at the Gujarat Industrial Development Corporation (GIDC), Vadodara, Gujarat. The third unit; Unit-III is located at Waghodia, which is also in Vadodara, Gujarat. The fourth unit, Unit-IV, is located at GIDC, Vatva near to the commercial capital of Ahmedabad. Broadly, Ratnaveer Precision Engineering Ltd manufacturers SS finishing sheets, SS washers and SS solar mounting hooks at Unit I, while it manufactures SS pipes & tubes at Unit II. The remaining two units viz. Unit III and Unit IV are dedicated to the backward integration process, which actually supply inputs to Unit 1 and 2. Unit III is the melting unit where melted steel scrap is turned into steel ingots, and Unit IV is the rolling unit where flat ingots are further processed into SS sheets; the principal raw materials for SS washers. The issue of Ratnaveer Precision Engineering Ltd will be lead managed by Unistone Capital Private ltd. For managing the shareholder records, Link Intime India Private Ltd will be the registrars to the issue.

Highlights of Ratnaveer Precision Engineering IPO issue

The size of the issue is not yet known since the price band for the book built IPO of Ratnaveer Precision Engineering Ltd is yet to be announced. However, the company has already announced the number of shares to be sold for the new issue and also for the offer for sale. The company, Ratnaveer Precision Engineering Ltd, has a face value of ₹10 per share, while the IPO price band is yet to be announced and that is expected to happen shortly. Here is what we know about the total number of shares to be sold in the IPO.

As part of the fresh issue portion, Ratnaveer Precision Engineering Ltd will issue 1,38,00,000 shares (138 lakh shares), the value of which is not known since the price is not announced. The offer for sale by promoters and early investors will entail the issue of 30,40,000 shares (30.40 lakh shares) and here again we have to wait for the price announcement before we can know the value of the OFS. The overall issue of shares by Ratnaveer Precision Engineering Ltd will entail the issue of a total of 1,68,40,000 shares (168.40 lakh shares). The total size of the issue will be the sum of the value of the fresh issue and the offer for sale, which will depend on the price band for the IPO, which is yet to be announced.

An offer for sale does not result in fresh funds coming into the company. However, it leads to change in ownership and increase in free float of the company, resulting in currency value barometers emerging via a stock exchange listing. The new issue brings in fresh cash into the company, but it is also eps dilutive and capital dilutive for the company. The promoters currently hold 86.30% stake in the company and once the price is decided, we will get to know the total equity dilution of the promoters post the combination of fresh issue and offer for sale.

Allotment quotas for different categories in the IPO

As per the terms of the offer of the Ratnaveer Precision Engineering IPO, 50% of the net offer is reserved for the qualified institutional buyers (QIBs), while 35% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The table below captures the quotas.

The company has a face value of ₹10 per share and post the IPO, the stock of Ratnaveer Precision Engineering Ltd will be listed on the NSE and on the BSE. Being a combination of a fresh issue and an offer for sale, the IPO will result in dilution of equity and EPS as well as transfer of promoter equity to public shareholders, thus increasing the free float.

Key dates for Ratnaveer Precision Engineering IPO and how to apply?

The issue opens for subscription on 04th September 2023 and closes for subscription on 06th September 2023 (both days inclusive). The basis of allotment will be finalized on 11th September 2023 and the refunds will be initiated on 12th September 2023. In addition, the demat credits are expected to happen on 13th September 2023 and the stock will list on 14th September 2023 on the NSE and the BSE. Ratnaveer Precision Engineering Ltd will do its anchor allotment bidding a day ahead of opening i.e., on September 01 2023. Let us now turn to the more practical issue of how to apply for the IPO of Ratnaveer Precision Engineering Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing. It must be noted that the anchor allocation will happen on 01st September, 2023; a day before the IPO opens for subscription to the public. Anchor allocation will be deducted from QIB portion.

Financial highlights of Ratnaveer Precision Engineering Ltd

The table below captures the key financials of Ratnaveer Precision Engineering for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI

There are few key takeaways from the financials of Ratnaveer Precision Engineering Ltd which can be enumerated as under

1. In the last 2 years, the revenues have grown at a very steady rate. It is not just that net profits have grown at a faster rate (grown nearly 5-fold) but the profit related margins are showing consistent signs of improving. PAT margins may be low at 5.2%, but the improvement has bene steady. ROE has grown from single digits 2 years back to more 23% in the latest fiscal year.
    
2. The company is currently having a weighted average EPS of ₹4.81 over the last 3 years and this particular sector has typically command valuations of around 35X to 40X on an average basis. With its niche business model and strong export franchise, the company does offer the scope to grow its profitability in the coming quarters.
    
3. As the pricing is awaited, one thing that stands out is the consistent asset turnover ratio or the asset sweating ratio. That has stayed in the range of 1.2 to 1.4 and that is normally a major boost to the ROE.

The company brings to the table some advantages like wide product portfolio, multiple designs, and wide end-use applications. It also has veteran promoters with an ear to the ground in the industry. Global presence is established and that is an added advantage. One has to await the price fixation since only then we would know how much is in the price and how much is on the table for investors. Ratnaveer Precision Engineering Ltd is best suited to investors with a longer time perspective and a higher risk appetite. Many of these precision products are vulnerable to the China factor.