What you must know about Sungarner Energies IPO?

Sungarner Energies Ltd was incorporated in the 2015. The company is engaged in the business of manufacturing Solar Inverters, Online UPS Systems, EV Chargers, and Lead Acid Batteries, which are some of the key inputs that go into the generation of solar energy and are also the key inputs of solar and renewable energy related equipment. The company started off as a design engineering and solar EPC company and later diversified into higher end products. Today, the company makes power electronics and energy storage products also. Sungarner Energies Ltd also producers lead acid batteries of capacities ranging from 12 Volts 40 ampere-hours to 12 volts 300 ampere-hours.

Sungarner Energies Ltd has also obtained a WMI (world manufacturer identifier) code for the manufacturing of EV Vehicles. This product is currently only in the prototype stage and there is still ti9me to full-scale manufacturing of EV Vehicles. The major clients of Sungarner Energies Ltd come from the northern states of Haryana, UP, and Rajasthan as well as the eastern states of Bihar and Assam. The company has also established a total of 6 service Centres in India, across most of its key markets. At present, the company is planning to expand its footprint through an additional 500 Franchisees that will cover all the major Districts of India by the end of 2025. Sungarner Energies Ltd has also started exports in the last 2 years and currently exports its specialized products to countries like Nigeria, Lebanon, Nepal, Dubai, and Bhutan.

Key terms of the Sungarner Energies SME IPO

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

• The issue opens for subscription on 21st August 2023 and closes for subscription on 23rd August 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at a fixed rate of ₹83 per share.
   
• The company will issue a total of 6,40,000 (6.40 lakh) shares which at the fixed price IPO of ₹83 per share aggregates to a total fund raising of ₹5.31 crore.
   
• There is no offer for sale portion in this IPO and hence the fresh issue size of ₹5.31 crore will also be the total size of the IPO of Sungarner Energies Ltd.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 57,600 shares. The market maker for the issue is Nikunj Stock Brokers Ltd 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 Sumit Tiwari and Snigdha Tiwari. The promoter holding in the company currently stands at 84.94%. However, post the fresh issue of shares, the promoter equity will be diluted to 61.49%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for general corporate purposes. Part of the funds raised will also go towards issue related expenses.
   
• While Fast Track Finsec Private Ltd will be the lead manager to the issue, Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 9% of the issue size for the market makers, 45.50% for the retail investors and the balance 45.50% for the HNI / NII investors or the non-retail investors in the IPO of Sungarner Energies Ltd. The break up in terms of minimum and maximum allowed quota has been 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 ₹132,800 (1,600 x ₹83 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 ₹265,600. 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.

Key dates to be aware of in the Sungarner Energies IPO (SME)

Sungarner Energies IPO opens on Monday, August 21st, 2023 and closes on Wednesday August 23rd, 2023. The Sungarner Energies Ltd IPO bid date is from August 21st, 2023 10.00 AM to August 23rd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5PM on the issue closing day; which is August 23rd, 2023.

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.

Financial highlights of Sungarner Energies Ltd

The table below captures the key financials of Sungarner Energies Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of around 4.00% to 4.20% while the ROE stands in the range of 22% to 24% in the last couple of years. The sales have been growing rapidly, albeit on a very small base, especially in FY21 and FY22. Hence the relative sales growth cannot be taken as conclusive evidence of sales growth performance. The company is in a space where the margins are not too high, but the competition from the unorganized sector is gradually increasing and cheap imports are always a threat. That adds to the operational risk of the business and the low levels of net margins would only put additional pressure on the valuations of the stock in the quarters ahead.

The weighted average EPS of the company for the last 3 years is ₹7.36, which would value the IPO price of ₹83 per share at tad over 10 times P/E. If you compare with the industry average, this is much lower, although the averages get skewed due to negative performance of some players in the industry. For the investors this IPO would remain higher on the risk scale in terms of the cost-benefit trade-off.