What you must know about Z-Tech India IPO?

Z-Tech India Ltd – About the company

Z-Tech India Ltd was incorporated in the year 1994 to designs civil engineering products and provides state-of-the-art specialty Geo-Technical Solutions. These specialized solutions are targeted at infrastructure and civil construction projects in India. Z-Tech India Ltd us also actively involved in the waste management sector; largely focused on creating theme parks using recycled scrap materials in an ecologically friendly and sustainable manner. In terms of its business verticals, Z-Tech India Ltd provides innovative and effective engineering solutions across 3 key areas. These include sustainable theme park development, industrial wastewater management, and geotechnical specialized solutions. It has a number of prominent names in the infrastructure space as its key clients. A cross section of clients include names like Bhartia Infra Projects Ltd, Dilip Buildcon Ltd, GMR Infra, Punj Llyod, NCC Ltd, MEP Infrastructure Developers, IRCON International, HCC Ltd, Madhucon Sugar and Power Industries etc. the company has 72 employees on its rolls.

Highlights of the Z-Tech India IPO

Here are some of the highlights of the Z-Tech India IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 29th May 2024 and closes for subscription on 31st May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹104 to ₹110 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of Z-Tech India Ltd has only a fresh issue component and no 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, Z-Tech India Ltd will issue a total of 33,91,200 shares (33.91 lakh shares approximately), which at the upper band IPO price of ₹110 per share aggregates to fresh fund raising of ₹37.30 crore.
   
• Since there is no OFS, the fresh issue size will also double as the overall issue. Therefore, the overall IPO size will also comprise of the issue of 33,91,200 shares (33.91 lakh shares approximately) which at the upper band IPO price of ₹110 per share will aggregate to overall IPO size of ₹37.30 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,70,400 shares. NVS Brokerage Private Ltd will be the market makers 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 Sanghamitra Borgohain and Terramaya Enterprises Private Ltd. The promoter holding in the company currently stands at 82.65%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 60.75%.
   
• The fresh issue funds will be used by the company for meeting their working capital purposes. Some part of the funds will also be used for general corporate expenses.
   
• Narnolia Financial Services Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is NVS Brokerage Private Ltd.

Z-Tech India IPO – Key Dates

The SME IPO of Z-Tech India IPO opens on Wednesday, 29th May 2024 and closes on Friday, 31st May 2024. The Z-Tech India Ltd IPO bid date is from 29th May 2024 at 10.00 AM to 31st May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 31st May 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 June 04th 2024, will be visible to investors under the ISIN Code – (INE0ISZ01012). 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

Z-Tech India IPO has already announced the market maker allocation at 1,70,400 shares as inventory for market making. NVS Brokerage Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Z-Tech India 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 1,200 shares. Thus, retail investors can invest a minimum of ₹1,32,000 (1,200 x ₹110 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 2,400 shares and having a minimum lot value of ₹2,64,000. 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 Z-Tech India Ltd.

Financial highlights: Z-Tech India Ltd

The table below captures the key financials of Z-Tech India Ltd for the last 3 completed financial years.

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 been fairly erratic. For example, sales fell sharply in FY23 and has picked up sharply in FY24. If you compare FY24 with FY22, the sales has more than doubled in this period, despite the interim volatility. Net profits have, however, followed an uptrend, which is also reflected in the improving PAT margins.
   
• While net margins of the company are fairly attractive at 11.58% in the latest year, the margins have grown sharply in the last 3 years. The return on equity (ROE) stands at 35.59% in FY24, while the return on assets (ROA) is robust at 18.60% in FY24. If we discount the volatility of FY23, the numbers are fairly strong.
   
• The asset turnover ratio or the sweating ratio has been robust in the latest year at 1.61X and that is good considering the capital intensity of the business. However, this sweating ratio also gets supported by the robust levels of return on assets (ROA) at 18.60%. We need to wait for a more sustainable number to be able to take a call.

The company has latest year EPS of ₹8.62 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹110 per share at 12-13 times P/E ratio. That looks fine, but for the volatility in numbers we have seen in the last few years. Since the company has already announced the FY24 numbers, we do not have any data to extrapolate into the next fiscal year and now the forwards earnings of FY25 will be the next test.

To be fair, Z-Tech India Ltd some bring some intangible advantages to the table. It has an ecologically conscious approach which should help in sustaining long term valuations as a business model. Also, its existing relationships with customers and a track record of timely and quality delivery adds value to the proposition. Investors may want to invest small amounts and then check the performance in the next few quarters for a sustainable earnings matrix. The risk is slightly high in this company and also the waiting period may be slightly longer.