Supreme Engineering IPO Review

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Supreme Engineering IPO

7.2

Company Background

6.5/10

Price Band

7.5/10

Financial Health

7.5/10

Industry Situation

7.0/10

IPO Proceeds Usage

7.5/10

Pros

  • Strong Financial Health
  • Low Price Band
  • Good for Long Term Investment

Cons

  • Relatively Risky Business Domain
IPO Basic Details
IPO Name Supreme Engineering Limited
IPO Dates August 24 to August 29, 2018
IPO Size 65,79,000
IPO Value ₹21 Crore
Face Value ₹10
IPO Price Band ₹27 to ₹32
Bid Lot 4000
Amount of 4000 shares ₹1,08,000 to ₹1,28,000
Exchanges NSE, BSE

 

Supreme Engineering Background

Supreme Engineering Limited is a company that falls into the manufacturing sector and specifically in the steel industry. Supreme Engineering Limited (SEL), was incorporated in the year 1987 as Supreme Heatreaters Private Limited and is engaged in the business of manufacturing special alloys and special wire products.

They have two manufacturing units in the state of Maharashtra at Khopoli and Rabale, Navi Mumbai, which are engaged in creating products that find their end usage in sectors such as aerospace, space, defence, nuclear power, thermal  power, oil & gas, heavy engineering, automotive, oil & gas, industrial machinery and hand tools industries.

Due to the nature of their products’ end usage, they to maintain high qualitative standards. Their units have been approved by various Defence Public Sector Undertakings, Public Sector Undertakings, etc. Both the manufacturing units have strong quality management systems certified by ISO 9001.

Their business objective is to grow revenues and profits through increased and diverse product portfolio and thereby increasing their market presence.

Supreme Engineering Management

Supreme Engineering has 5 Directors including a Non-Executive Director & Chairperson. Mrs Lalita Sanjay Chowdhri is the Non-Executive Director & Chairperson, Mr Sanjay Rattan Prakash Chowdhri is the Managing Director, Mr Abhinav Sanjay Chowdhri is the Executive Director and Dr Jayaraman Kannan and Mr Prakash Vithalrao Deshmukh are two Independent Directors.

Sanjay Chowdhri, Non-Executive Director & Chairperson

He is the Promoter and Managing Director of Supreme Engineering since incorporation and has been re-appointed for a further term of 5 years beginning in 2018. He is a Qualified Engineer in the field of Electronics and Communication, having attained a Bachelor of Engineering Degree from Karnataka University (Dharwad) in the year 1985.

He has an experience of more than three (3) decades in the field of metallurgy.

Supreme Engineering IPO Data Points

The Supreme Engineering IPO will open on August 24 2018, and close for subscription on August 29, 2018.

The IPO size will be of 65.79 lakh Equity shares and the face value of each share will be Rs 10.

Out of 65.79 lakh shares, 3.3 lakh shares will be reserved for market makers and the rest will be issued to the public. The price band range has been set at Rs. 27 – Rs. 32 per share.

The IPO size is expected to be up to Rs 21.05 Crore.

The market lot size is of 4 thousand shares. The shares will be listed on the National Stock Exchange. The issue has been authorised by the Board of Directors and shareholders of Supreme Engineering Limited.

Supreme Engineering Financial Performance

The financial performance of Supreme Engineering has been consistently good over the last years. If we talk about growth in total revenues in percentage terms, the growth percentage for the year ended March 31, 2018, has been 25.98% which is significantly better than the growth percentage for the previous period (6.35%).

There is a consistent rise in total assets and profit after tax as well. Also, EPS has also improved over the last few years.

 

For the year ended, March 31, 2018, the Return on Net Worth (RONW) is 16.03% in comparison with 12.85% during the year ended March 31, 2017.

Besides the increase in revenues and profits, the rate of growth has also increased over the last few years which is a good sign of a growing company.

Supreme Engineering IPO Objectives

The major objectives of the IPO look strong and are as follows:

  • For part financing the working capital requirements
  • For part repayment of high-cost debt
  • For finance capital expenditure for the following purpose:
    • Acquisition of plant & machinery
    • Up gradation of existing technology
  • For meeting general corporate expenses
  • For meeting expenses related to the Supreme Engineering IPO Issue

Along with these tangible objectives, Supreme Engineering will be benefitted in terms of enhancing its visibility, corporate image and brand name through this IPO.

Supreme Engineering IPO Events

Supreme Engineering filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on February 19, 2018, for the book building IPO.

The offer will open on August 24, 2018, and close on August 29, 2018. The finalisation of basis of allotment is expected to happen on September 4, 2018, and the initiation of refunds is expected to start on September 5, 2018.

The transfer of shares to demat accounts is expected to start on September 6, 2018, and the expected listing date will be September 7, 2018.

Supreme Engineering IPO Recommendation

Before making a decision whether to invest in Supreme Engineering IPO or not, let us discuss some strengths and risks of Supreme Engineering Limited one by one.

For analysing the quality of any business, customer satisfaction is one of the most important criteria to judge. This company has been consistently satisfying its customer base in terms of high quality of customised manufactured products and for the same reason, it reports on having several repeat orders from its customers.

It shares a long-standing relationship with its customers. Also, its manufacturing facilities have been approved by the end users being public sector undertakings in the aerospace, defence and power sectors.

They also appear to be technologically sound as they have installed and established advanced technology and infrastructure in their manufacturing units. Supreme Engineering Limited focuses on innovating and improving processing methods through research and development. They have a strong and experienced in-house team for research and development.

Another important aspect of analyzing a company’s future growth is its management and employees. They have a strong management team of second-generation qualified engineers as well as other experienced persons in the field of finance, management, personnel administration and engineering.

The attrition rate of the company is also quite low.

If we look at the company from the financial point of view, we see that the company has shown a decent growth in revenues and profits in the last few years. Total revenues have grown by more than 25% in the financial year ended March 31, 2018, as compared to a growth rate of 6% in the previous period.

Besides the actual increase in revenues and profit numbers, the rate of growth has also seen an increase which is a sign of a healthy company.

Now, let us analyse some potential risks for Supreme Engineering Limited. A large part of their revenues generated come from public sector undertakings under government orders in the defence, aerospace, nuclear power and heavy industries.

If there is a shift in government spending or changes in security levels, general economic conditions and developments, etc., it may affect the revenues and the overall business of the company.

Another risk is common for almost all businesses like an increase in prices of their raw materials and dependence on suppliers for supply of the raw materials. Also, if they are unable to source good quality raw materials at competitive prices, this may affect the operations and overall profitability of the company.

Another important factor is that the business is dependent on the delivery of an adequate and uninterrupted supply of electric power at a reasonable cost. Any changes in that could also adversely affect the business.

Problems and delays in development or delivery as a result of issues with respect to design, technology,  licensing and patent rights, labour, etc. pose another risk for the business.

Competition is another risk for the company which is also common for all businesses. The steel industry is highly competitive and if there is consolidation in this industry, it could put Supreme Engineering Limited in a disadvantageous position.

The capacity of manufacturing is not fully utilized and if there is also any underutilization of proposed expanded capacities, this could adversely affect financial performance. There are many other risks concerning Supreme Engineering, which is common for any business to have.

After analysing several strengths and risks related to the company, it can be said that investors may consider investing in Supreme Engineering IPO for long-term for decent returns but certainly not for short-term quick profits.

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Supreme Engineering IPO Advisors Information

CKP Financial Services Private Limited is acting as the sole Lead Manager and Bigshare Services Pvt Ltd is acting as the registrar of this Issue. HDFC Bank Limited is acting as the banker to the issue/ refund banker. M/s. R.T. Jain & Co are acting as experts for Supreme Engineering Limited.

Summary
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Supreme Engineering IPO
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