What you must know about Thaai Casting IPO?

Thaai Casting Ltd was incorporated in the year 2010 as an auto ancillary company with a predominant focus on high-pressure die casting. In addition, Thaai Casting Ltd  is also into the precision machining of ferrous and non-ferrous materials; apart from induction heating and quenching. The company manufactures a wide range of auto ancillary products including engine mounting support brackets, transmission mounts, fork shift and housing, steering wheel armatures, electrical connectors, YFG base frames, top cover etc. These are directly supplied to the OEM companies or at times even to the intermediaries. Thaai Casting Ltd has a manufacture plant located at Tiruvallur in the state of Tamil Nadu. As of date the company employs nearly 132 persons in its facilities.

The company, Thaai Casting Ltd , was founded by Sriramulu Anandan, who has been active in this castings field for more than 30 years. He brings to the table his rich experience in pressure die-casting and the machining process. Its manufacturing facility is fully equipped with all kind of machinery including machinery for high pressure die casting, trimming / deburring, shot blasting, VIBRO, specialized testing, general testing, induction heat treatment, tempering, VTL machining, and cylindrical grinding. Some of its major clients include marquee names like Motherson Sumi, Yazaki, Nash, MEI, UCAL, Sanden, AG Industries and Woosu in the automotive space. In the non-automotive space, the clients of Thaai Casting Ltd include Schindler, Harting, Bonfiglioli, WIKA, Savio and TAG Corporation.

Key terms of the Thaai Casting IPO

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

• The issue opens for subscription on 15th February 2024 and closes for subscription on 19th February 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 ₹73 to ₹77 per share. Being a book built issue, the price will be discovered in the above band.
   
• The IPO of Thaai Casting 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 and  hence it is not EPS or equity dilutive.
   
• As part of the fresh issue portion of the IPO, Thaai Casting Ltd will issue a total of 61,29,600 shares (61.296 lakh shares), which at the upper band of IPO price of ₹77 per share aggregates to fresh fund raising of ₹47.20 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 61,29,600 shares (61.296 lakh shares) which at the upper band IPO price of ₹77 per share will aggregate to overall IPO size of ₹47.20 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,47,200 shares. Giriraj Stock Broking 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 Sriramulu Anandan, Anandan Shevaani and Chinraj Venkatesan. The promoter holding in the company currently stands at 86.50%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 63.58%.
   
• The fresh issue funds will be used by the company towards capex at its plants and for general corporate purposes. Part of the proceeds will also be used to fund working capital gaps and for meeting the issue expenses.
   
• GYR Capital Advisors Private Ltd will be the lead manager to the issue, and Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is Giriraj Stock Broking Private Ltd.

IPO allocation and minimum lot size for investment

Thaai Casting Ltd has already announced the market maker allocation at 3,47,200 shares as inventory for market making. Giriraj Stock Broking 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 IPO of Thaai Casting 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 ₹1,23,200 (1,600 x ₹77 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 ₹2,46,400. 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.

Key dates to be aware of in the Thaai Casting IPO (SME)

The SME IPO of Thaai Casting Ltd IPO opens on Thursday, 15th February 2024 and closes on Monday, 19th February 2024. The Thaai Casting Ltd IPO bid date is from 15th February 2024 at 10.00 AM to 19th February 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 19th February 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 February 21st 2024, will be visible to investors under the ISIN Code – (INE0QJL01014).

Financial highlights of Thaai Casting Ltd

The table below captures the key financials of Thaai Casting 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 grown at a steady pace in the last 2 years and hence the latest year revenue data shows a secular growth trend, which is a positive signal. The top line sales have more than doubled in the last 2 fiscal years. The PAT margins are relatively strong in the latest year at 10.29% and the dilution could reduce this number.
   
• While net margins of the company have been relatively volatile and rather robust, it is more because the company has assured robust margins in this business. In addition, the ROE at 31.14% and the return on assets or ROA at 9.16% in the latest year are very attractive and stable.
   
• The asset turnover ratio or the sweating ratio has been under 1, but with robust return on assets, that is not a problem. Also, as the sales picks up in the coming quarters, this ratio should only get better.

The company has latest year EPS of ₹2.96 and even through previous data may not really be comparable, the weighted average EPS of last 3 years stand at ₹1.75. The latest year earnings are being discounted by the IPO price of ₹77 per share at 25-26 times P/E ratio. However, if we annualize the latest 7-month EPS of ₹3.28, we are looking at full year EPS of around ₹5.62 for FY25 and on that price, the P/E ratio is a lot more reasonable at 13.7X. With its established products and client base, the stock is definitely in a business where the investors can take a long term bet on the stock.  Investors with a higher risk appetite and a longer time frame can surely look at this IPO.