What you must know about Tunwal E-Motors IPO: IPO Price ₹59 per Share

About Tunwal E-Motors Ltd

Tunwal E-Motors Ltd was incorporated in the year 2018 to engage in the business of electrical vehicles (EV) manufacture. The company specifically focuses on designing, developing, manufacturing, and distributing high-quality electric two-wheelers. Till date, Tunwal E-Motors Ltd has already introduced a total of 23 varied models in the Indian market. It currently operates through a network of 256 dealers which has ensured its presence in over 19 Indian states. These dealers not only provide the market access to the company, but also provide after-sales services; including routine maintenance, battery management, diagnostics, safety checks, and replacement of key components etc. Tunwal E-Motors Ltd has a manufacturing unit located at Sikar with a capacity of 41,000 units. The manufacturing unit is spread across an area of 8,000 SQM. The company employs a total of 64 personnel on its rolls across various functions and verticals. 

Highlights of the Tunwal E-Motors IPO

Here are some of the highlights of the Tunwal E-Motors IPO on the SME segment of the National Stock Exchange (NSE). 

•    The issue opens for subscription on 15th July 2024 and closes for subscription on 18th July 2024; both days inclusive.

•    The stock of the company has a face value of ₹2 per share and it is a fixed price issue. The IPO price for the fixed price issue of Tunwal E-Motors Ltd  has been set at ₹59 per share. Being a fixed price IPO, there is no question of price discovery.

•    The IPO of Tunwal E-Motors Ltd has a fresh issue component and an offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.

•    As part of the fresh issue portion of the IPO, Tunwal E-Motors Ltd will issue a total of 1,38,50,000 shares (138.50 lakh shares), which at the fixed IPO price of ₹59 per share aggregates to fresh fund raising of ₹81.72 crore.

•    The offer for sale portion of the IPO of Tunwal E-Motors Ltd will entail the sale / offer of 57,50,000 shares (57.50 lakh shares), which at the fixed IPO price of ₹59 per share aggregates to an OFS size of ₹33.93 crore. The entire 57.50  lakh shares in the OFS are being offered by the promoter, Jhumarlal Pannaram Tunwal.

•    Therefore, the overall IPO size will also comprise of the fresh issue and OFS of 1,96,00,000 shares (196.00 lakh shares) which at the fixed IPO price of ₹59 per share aggregates to overall IPO size of ₹115.64 crore.

•    Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 9,80,000 shares as quota for market inventory. Nikunj Stock Brokers Ltd and Giriraj Stock Broking Private Ltd have already been appointed as the joint market makers to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.

•    The company has been promoted by Jhumarlal Pannaram Tunwal. The promoter holding in the company currently stands at 97.04%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 62.34%.

•    The fresh issue funds will be used by the company for inorganic growth via M&A, research & development, and for funding working capital needs of the company. A small part of the IPO proceeds has also be set aside for general corporate needs. 

•    Horizon Financial Private will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The joint market makers for the issue Nikunj Stock Brokers Ltd and Giriraj Stock Broking Private Ltd.

The IPO of Tunwal E-Motors Ltd will be listed on the SME IPO segment of the NSE.
 

Tunwal E-Motors IPO – Key Dates

The SME IPO of Tunwal E-Motors IPO opens on Monday, 15th July 2024 and closes on Thursday, 18th July 2024. The Tunwal E-Motors IPO bid date is from 15th July 2024 at 10.00 AM to 18th July 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 18th July 2024.

Data Source: Company RHP

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 July 22nd 2024, will be visible to investors under the ISIN Code – (INE0OXV01027). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO Allocation and Minimum Investment Lot Size

Tunwal E-Motors Ltd has announced a market maker allocation of 9,80,000 shares, which will be used as inventory for market making. Nikunj Stock Brokers Ltd and Giriraj Stock Broking Private Ltd will be the joint market makers 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 Tunwal E-Motors Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,18,000 (2,000 x ₹59 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 ₹2,36,000. 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.

There are no upper limits for investments by HNIs / NIIs in the IPO of Tunwal E-Motors Ltd.

Financial Highlights of Tunwal E-Motors Ltd

The table below captures the key financials of Tunwal E-Motors Ltd for the last 3 completed financial years. The financials are updated as of the close of fiscal year 2023-24.

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY22 to FY24, being the latest year. 

•    The revenues over the last 3 years have growth at a modest clip, with FY24 revenues about 38.6% above the revenues of FY22. As net profit traction has picked up over the last two years, the net margins have also improved sharply to 11.29% in the latest year.

•    While net margins of the company have been relatively strong at 11.29%, the other return margins have also shown growth traction in latest year. The return on equity (ROE) stands robust at 57.53% in FY24, while the return on assets (ROA) is also strong at 15.58% in FY24. Both are up sharply from the previous years.

•    The asset turnover ratio or the sweating ratio has been healthy in the latest year at 1.38X and that only gets further accentuated when you look at the healthy levels of the ROA. It remains to be seen how the additional capital base is handled by sales growth.

The company has latest year EPS of ₹2.85, after adjusting for capital actions. The FY24 earnings are being discounted by the IPO price of ₹59 per share at 20-21 times P/E ratio. That is slightly on the expensive side, especially considering that the surge in profits and margins has only happened in the latest year FY24. Also, if this growth continues into FY25, then justifying the valuations should not be too difficult. 

To be fair, Tunwal E-Motors Ltd some bring some intangible advantages to the table. It has the advantage of being a pure EV player, which is one of the big green bets of the auto sector. It has a slew of models and has fine-tuned a profitable business model. The investors can look at the IPO from a longer term perspective with a holding period of 1-2 years; purely from participating in this particular space. Ideally, investors must be prepared for the higher risk implicit in such IPO stocks; but the business model does look promising. This is a high growth space, so the premium need not be grudged by the IPO investor.