What you must know about Vishnusurya Projects and Infra IPO?

Vishnusurya Projects and Infra Ltd was incorporated in 1996 and is engaged in mining of rough stones and manufacturing of sand using crushing plants and sand washing plants. Vishnusurya Projects and Infra Ltd operates 3 business verticals. The first vertical is the EPC division offering property development for commercial spaces like offices, industrial parks, factories, and warehouses; apart from residential houses. The mining vertical operates two quarries in Tamil Nadu. It has a blue metal mining quarry and crushing facility for rock breaking and rock auguring operations. In addition, it also has a unit for manufactured sand, equipped with a crushing machine capable of handling 350 tonnes and 150 tonnes of sand washing. The third, and much smaller vertical is the business of drones or unarmed aerial vehicles. Vishnusurya Projects and Infra Ltd is an accredited Class-I contractor with various departments in Tamil Nadu like the Greater Chennai Corporation, Government of Tamil Nadu Water Resources Department, Tamil Nadu Water Supply and Drainage Board etc.

Key terms of the Vishnusurya Projects and Infra IPO (SME)

Here are some of the highlights of the Vishnusurya Projects and Infra IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 29th September 2023 and closes for subscription on 04th October 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price has been fixed at ₹68 per share. Since it is a fixed price issue, there will be no price discovery required in this case.
   
• The IPO of Vishnusurya Projects and Infra Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. 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, Vishnusurya Projects and Infra Ltd will issue a total of 73,52,942 shares (73.53 lakh shares approximately). At the fixed price of the IPO price of ₹68 per share, the total value of the fresh issue portion aggregates to ₹50 crore.
   
• Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. As a result, the total issue size of Vishnusurya Projects and Infra Ltd will also entail the issue and sale of 73,52,942 shares (73.53 lakh shares approximately). At the fixed IPO price of ₹68 per share, the total size of the IPO of Vishnusurya Projects and Infra Ltd will be₹50 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory. While the company is yet to specific the exact quantum of market maker inventory, the general practice is to allocate around 5% of the overall IPO issue size to the market maker to provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Bhavani Jayaprakash. The promoter holding in the company currently stands at 88.74%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 62.23%.
   
• The fresh issue funds will be used by the company for funding the working capital gaps and for repayment / prepayment of certain outstanding borrowings of the business. Some part will also be allocated towards general corporate purposes.
   
• While Khandwala Securities Ltd will be the lead manager to the issue, Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue and the market maker inventory is yet to be announced officially.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company is likely to allocate around 5% shares for the market maker for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be distributed between the retail investors and the HNI / NII investors. The table below captures the gist of the IPO allocation to various categories.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,36,000 (2,000 x ₹68 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 ₹2,72,000. 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 Vishnusurya Projects and Infra IPO (SME)

The SME IPO of Vishnusurya Projects and Infra IPO opens on Friday, September 29th, 2023 and closes on Wednesday, October 04th, 2023. The Vishnusurya Projects and Infra Ltd IPO bid date is from September 29th, 2023 10.00 AM to October 04th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 04th, 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 Vishnusurya Projects and Infra Ltd

The table below captures the key financials of Vishnusurya Projects and Infra Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

One thing that follows from the financial statement is that most of the growth has come in the last 2 years. The company has reported net margins of over 13% in the current year, which is a good level of NPM on high sales base. One risk could be that there is a lot of political interference and an informal sector active in this business. However, the ROE is consistently attractive at around 30% and the economics should improve further if the company is able to sweat its assets at a consistently good rate as it is likely to be able to do once the sales momentum picks up. Asset turnover is already above 1.

The traditional P/E model becomes difficult to apply in the case of Vishnusurya Projects and Infra Ltd as the company has delivered a relatively better performance only in the latest year. Also, the P/E equations change drastically. If you consider the latest earnings, then the indicative P/E ratio of around 3-4, is likely to get more attractive as the profit story builds up. The only risk to the model is the risk of regulation and the risk of the unorganized sector impacting margins. Investors can look at the IPO with a higher risk appetite and for a holding period of more than a year.