What you must know about Associated Coaters IPO?

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 30th May 2024 - 01:11 pm

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About Associated Coaters Ltd

Associated Coaters Ltd  was incorporate in the year 2017 and its core business is to provide services for pre-treatment and powder coating of aluminium extrusions. The idea is to improve its resistance, resilience, and longevity. The products manufactured by Associated Coaters Ltd are extensively used in the architectural and real estate segments. Currently, the company has an in-house capacity of 1,200 metric tons per annum (MTPA). The company and its manufacturing plants are located in the Eastern part of India and the company currently has an automatic coating plant and a manual coating plant. Currently, Associated Coaters Ltd is a major player in the aluminium extrusion coating segment in eastern India. Its operations are managed by a team of 15 personnel and its product process adheres to strong quality certifications.

Highlights of the Associated Coaters Ltd (BSE SME IPO)

Here are some of the highlights of the Associated Coaters IPO on the SME segment of the Bombay Stock Exchange (BSE).

  • The issue opens for subscription on 30th May 2024 and closes for subscription on 03rd June 2024; both days inclusive.
     
  • The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹121 per share. Being a fixed price issue, the question of price discovery does not arise.
     
  • The IPO of Associated Coaters 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, 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, Associated Coaters Ltd will issue a total of 4,16,400 shares (4.16 lakh shares approximately), which at the fixed IPO price of ₹121 per share aggregates to fresh fund raising of ₹5.04 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 4,16,400 shares (4.16 lakh shares) which at the fixed IPO price of ₹121 per share will aggregate to overall IPO size of ₹5.04 crore.
     
  • Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 21,600 shares. Gretex Share Broking 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 Jagjeet Singh Dhillon and Navneet Kaur. The promoter holding in the company currently stands at 99.98%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted.
     
  • The fresh issue funds will be used by the company towards funding capital expenditure towards installation of plant and machinery in the existing premises and for working capital requirements. Part of the funds will also be used for general corporate purposes.
     
  • Gretex Corporate Services Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Gretex Share Broking Ltd.

The IPO of Associated Coaters Ltd will be listed on the SME IPO segment of the BSE.

Associated Coaters Ltd IPO – Key Dates

The BSE SME IPO of Associated Coaters Ltd IPO opens on Thursday, 30th May 2024 and closes on Monday, 03rd June 2024. The Associated Coaters Ltd IPO bid date is from 30th May 2024 at 10.00 AM to 03rd June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 03rd June 2024.

Event

Tentative Date

IPO Open Date

30th May 2024

IPO Clos Date

03rd June 2024

Basis of Allotment

04th June 2024

Initiation of Refunds to non-allottees

05th June 2024

Credit of Shares to Demat

05th June 2024

Listing Date

06th June 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 05th 2024, will be visible to investors under the ISIN Code – (INE0RIQ01013). 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

Associated Coaters Ltd has already announced the market maker allocation at 21,600 shares as inventory for market making. Gretex Share Broking Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Associated Coaters Ltd in terms of allocation to various categories are captured in the table below.

Investor Category

Shares Allocated in the IPO

Market Maker Shares

21,600 shares (5.18% of the total issue size)

QIB Shares Offered

There is no QIB allocation in the IPO

NII (HNI) Shares Offered

1,97,400 shares (47.41% of the total issue size)

Retail Shares Offered

1,97,400 shares (47.41% of the total issue size)

Total Shares Offered

4,16,400 shares (100.00% of total issue size)

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹1,21,000 (1,000 x ₹121 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 2,000 shares and having a minimum lot value of ₹2,42,000. 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.

Application

Lots

Shares

Amount

Retail (Min)

1

1,000

₹1,21,000

Retail (Max)

1

1,000

₹1,21,000

HNI (Min)

2

2,000

₹2,42,000

Financial highlights: Associated Coaters Ltd

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

Particulars

FY23

FY22

FY21

Net Revenues (₹ in crore)

3.59

1.39

0.00

Sales Growth (%)

157.47%

N.A.

 

Profit after Tax (₹ in crore)

0.54

0.14

-0.00

PAT Margins (%)

15.13%

9.81%

N.A.

Total Equity (₹ in crore)

0.70

0.16

0.02

Total Assets (₹ in crore)

2.96

2.02

0.03

Return on Equity (%)

77.20%

85.17%

-5.88%

Return on Assets (%)

18.34%

6.77%

-5.15%

Asset Turnover Ratio (X)

1.21

0.69

0.00

Earnings per share (₹)

5.84

1.47

-0.01

Data Source: Company DRHP filed with SEBI

The previous years data is not comparable as the company performance has been very volatile. For the latest year, Associated Coaters Ltd has reported relatively good numbers. However, you really lack the benefit of a history of performance to be able to take a view on the company. The PAT margins stand at 15.13%, while the ROE at 77.20% and the ROA at 18.34% are also fairly attractive. However, the revenues are yet to catch up with the growth in assets in the latest year. Also,  the equity base is too small so the ROE may look overstated. Sustaining this profits will be the key to valuations; and that may be slightly tough. Also, investing in a company of this size has its own level of entry level risks.

The company has latest year EPS of ₹5.84 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 ₹121 per share at 20-21 times P/E ratio. That does look like a steep price to pay for a company that is just about stabilizing operations. Even if you look at the 6-months EPS for FY24 at ₹3.57, it translates into full year extrapolated EPS of ₹7.14 per share. That is still about 17 times earnings, which looks expensive for the stock. At this juncture, it looks like the valuations are too steep considering the size of the company and the market risks that it is exposed to. Even the valuations don’t leave much on the table for the investors. Investors need to take a view based on these realities.

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Disclaimer: Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

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