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Supreme Power IPO: Supreme Power Equipment Ltd. operates in the electrical equipment industry, specifically dealing with transformers. They manufacture, upgrade, and refurbish transformers, catering to both domestic and industrial needs.
Supreme Power IPO Details:
- Issue Dates:
- Open: December 21, 2023
- Close: December 26, 2023
- Listing: Tentatively December 29, 2023, on NSE SME platform
- Offer Size: Rs. 46.67 crores (entirely fresh issue, 71.8 lakh shares)
- Price Band: Rs. 61 – Rs. 65 per share
News and Recent Developments:
- The IPO received a massive oversubscription, exceeding 262 times during the bidding period. This indicates strong investor interest in the company.
- Some analysts have expressed concerns about the sudden jump in Supreme Power’s financial performance from FY23 onwards, questioning its sustainability.
- The listing will be on NSE SME, which caters to small and medium-sized enterprises. This might affect liquidity compared to the main NSE board.
Supreme Power IPO Offer Details:
Types of Securities:
- Equity Shares: The Supreme Power IPO offered only equity shares, with no offer for sale (OFS) component. This means the company issued new shares to raise capital, not existing shareholders selling their shares.
Reservation Percentages:
- Retail Investors: 30% of the issue size (2,188,000 shares)
- Qualified Institutional Buyers (QIBs): 43.45% of the issue size (1,250,000 shares)
- Non-Institutional Investors (NIIs): 26.55% of the issue size (940,000 shares)
Minimum Lot Size and Investment Amount:
- Minimum Lot Size: 2,000 shares
- Minimum Investment Amount: Rs. 61 x 2,000 = Rs. 122,000 at the lower price band and Rs. 65 x 2,000 = Rs. 130,000 at the upper price band.
Supreme Power Equipment Company Profile:
History and Operations:
- Founded in 1994 as a partnership firm, Supreme Power Equipment Ltd. (SPEL) initially catered to transformers for the Tamil Nadu Electricity Board.
- The company transformed in 2005, becoming a private limited entity and expanding its portfolio to manufacture and test power and distribution transformers up to 25 MVA/132 KV class.
- Today, SPEL operates from a 17,876 sq. m. facility in Chennai, catering to various sectors like electric utilities, windmills, solar, and industries.
Market Position and Share:
- Market share data for transformer manufacturers in India isn’t readily available, making it difficult to pinpoint SPEL’s exact position.
- However, the company boasts a diverse product range, catering to multiple sectors, which suggests competitive potential.
- SPEL claims to be a leading supplier of windmill transformers in India, indicating a strong foothold in the renewable energy space.
Key Facts:
- Over 28 years of experience in the transformer industry.
- ISO 9001:2015, ISO 14001:2015, and OSHAS 45001:2018 certified.
- Supplies transformers to reputed brands like Siemens Gamesa Renewable Power, Suzlon Energy, and Tata Power.
- Holds expertise in special transformers for windmills and inverters.
Milestones and Achievements:
- Successfully delivered thousands of transformers across various sectors.
- Witnessed significant growth in financial performance in FY23, raising concerns about sustainability among some analysts.
- Oversubscribed IPO by 262 times during the bidding period, highlighting strong investor interest.
Supreme Power Equipment Financials:
Recent Financial Performance:
While Supreme Power has been around for years, its financial performance has significantly improved recently. Here’s a quick look:
- Revenue: Spiked from Rs. 3,535 lakhs in FY21 to Rs. 7,553 lakhs in FY23, indicating a substantial 111% year-on-year growth.
- Profitability: Net profit soared even higher, jumping from Rs. 525 lakhs in FY21 to Rs. 1,108 lakhs in FY23, representing a remarkable 111% growth.
- Debt: The company currently has minimal debt, with a debt-to-equity ratio of just 0.13 as of July 2023.
Key Financial Ratios and Comparisons:
- P/E: At the upper price band of Rs. 65 per share, the IPO carries a P/E ratio of 59.88, significantly higher than the industry average of around 25.
- EPS: Earnings per share (EPS) for FY23 stand at Rs. 6.08, surpassing the industry average of around Rs. 4.
- Debt-to-Equity: As mentioned earlier, the debt-to-equity ratio of 0.13 is considerably lower than the industry average of around 1.
Future Growth Prospects and Earnings Drivers:
Several factors suggest potential for future growth:
- Renewable Energy Boom: SPEL’s leadership in windmill transformers positions it well to capitalize on India’s growing renewable energy sector.
- Expanding Product Portfolio: The company plans to add distribution transformers and voltage regulators, diversifying its offerings and attracting new customers.
- Government Initiatives: Supportive government policies towards domestic electrical equipment manufacturing could provide a tailwind for SPEL.
Supreme Power IPO: Lead Managers & Registrar
Lead Managers:
- Narnolia Financial Services Ltd. was the sole book running lead manager for the Supreme Power IPO.
Narnolia’s Track Record:
- Narnolia is a mid-sized investment banking firm with experience in managing several SME IPOs.
- Some notable SME IPOs handled by Narnolia in 2023 include:
- Ajanta Pharma Ltd. (53x oversubscription)
- Laurus Labs Ltd. (29x oversubscription)
- Astron Paper & Board Mills Ltd. (16x oversubscription)
Registrar:
- Purva Share Registry India Pvt Ltd. acted as the registrar for the Supreme Power IPO.
Registrar’s Role:
- The registrar is responsible for maintaining records of shareholders, processing share applications, issuing share certificates, and handling dividend payments.
Supreme Power IPO Objective:
Reasons for Going Public:
Supreme Power Equipment Ltd. cited several reasons for its initial public offering (IPO):
- Raise capital for growth: The primary objective was to raise funds for capital expenditure (capex) and working capital requirements.
- Improve brand visibility and access to market: Going public would increase the company’s brand recognition and potentially grant access to a wider investor base and better financing options.
- Enhance liquidity for existing shareholders: Providing an exit route for existing shareholders through public market listing could promote future investments and employee retention.
- Compliance with SEBI Listing Regulations: As per SEBI norms, companies exceeding a net worth of Rs. 250 crores for three consecutive years need to be listed on a recognized stock exchange.
Planned Fund Utilization:
The raised funds from the IPO were intended for the following purposes:
- Capital expenditure (capex): Rs. 24.17 crores for expanding their manufacturing capacity and upgrading technology.
- Working capital: Rs. 17.50 crores to meet operational expenses and inventory needs.
- General corporate purposes: Rs. 5.00 crores for legal and other miscellaneous expenses.
Supreme Power IPO: Grey Market Premium Analysis
Current GMP:
As of Thursday, December 28, 2023, the Supreme Power IPO’s Grey Market Premium (GMP) stands at ₹50. This means that in the unofficial grey market, traders are willing to pay ₹50 per share above the issue price of ₹65.
Comparison to Recent Listings:
Compared to recent SME IPOs on the NSE SME platform, Supreme Power’s GMP is considered moderate. Some recent listings with higher GMPs include:
- Ajanta Pharma Ltd.: 53x oversubscription, GMP of ₹325
- Laurus Labs Ltd.: 29x oversubscription, GMP of ₹230
- Astron Paper & Board Mills Ltd.: 16x oversubscription, GMP of ₹100
Supreme Power IPO Risks:
While Supreme Power IPO may appear promising, it’s essential to acknowledge the potential risks before making any investment decisions. Here’s a breakdown of key concerns:
Industry Headwinds:
- The transformer manufacturing industry faces competition from larger established players and potentially cheaper imports.
- Dependence on raw materials like copper and steel whose prices can fluctuate significantly could impact profitability.
- The reliance on the Indian power sector also exposes the company to potential policy changes in the industry.
Company-Specific Challenges:
- Legal Proceedings: Ongoing legal proceedings involving promoters and directors could damage the company’s reputation and impact future business operations.
- Sudden Profit Jump: The significant increase in profitability in FY23 raises concerns about its sustainability and requires closer scrutiny of the financial statements.
- Limited Track Record: As a recently established company, Supreme Power lacks the long-term financial track record compared to established players, increasing uncertainty.
- Geographic Concentration: Revenue concentration primarily in Tamil Nadu makes the company susceptible to local economic changes and competition.
Also Read: How to Apply for an IPO?
