Last updated on July 23, 2022
Visakhapatnam-based aluminium alloy wheels player Precision Metaliks has started its IPO today and it will remain open through 24 January 2022. The company is looking to raise as much as INR 21.93 crore by issuing 43,00,000 shares at the rate of INR51 per share. We have gone through the prospectus to better understand the company and have analyzed its operations on 25 parameters. Here is Precision Metaliks IPO Review in a nutshell, please scroll down for the detailed view.
Precision Metaliks IPO Review
Precision Metaliks IPO Review: Business Basics
Are the company’s annual revenues more than INR50 crore?
Yes. Precision Metaliks (website) had revenues of nearly INR48.1 crore in the six months of FY2022 which when annualized exceeds the INR50 crore threshold.
Are the company’s annual profits after tax in excess of INR5 crore?
No, Precision Metaliks’ net earnings after tax stood at INR1.5 crore in FY2021 while net profits for H1 FY2022 were INR2.1 crore. The company is likely to be slightly below the INR5 crore mark.
Has the company got a strong and recognizable brand?
No. Precision Metaliks provides B2B services and works primarily on semi-finished alloy wheels. The finished products are sold under the brands of its clients.
Is there a strong moat in place in the form of entry barriers, market reach etc?
Yes, Precision Metaliks operates in a capital-intensive industry which acts as an entry barrier, although there are a number of competitors domestically and internationally. Nevertheless, it has longstanding business relationships with its clients which is difficult to replicate.
Is the company free of big client risks in terms of impact on revenues?
No. Precision Metaliks has a limited set of customers and they account for majority of its sales revenues and order book. For the latest six months of FY2022, Synergies Castings Limited accounted for 91.75% of the company’s revenues.
Do exports contribute a sizeable chunk to annual revenues, giving the company an edge over its competitors?
Yes. Over 90% of Precision Metaliks’ services were deemed exported during the H1 FY2022.
Is there a strong connect between the company and retail consumers?
No. As mentioned above, the company operates in B2B (Business to Business) trade and thus, hasn’t got a retail connect.
Precision Metaliks IPO Review: Management Analysis
Is the company’s top management experienced enough to lead operations through difficult times?
Yes, the company’s promoter Ms Jayanthi Roja Ramani is actively involved in the management and has experience of almost 2 decades in various positions in the fields of accounts and finance. Its CEO Sevvana Venkata Raman Rao has experience of over 4 decades in human resource management, industrial relations and administration.
Are the management members/promoters paying themselves fairly without jeopardizing shareholders’ interests?
Yes, we didn’t find excessive remuneration for management.
Do the promoters have sizeable equity left in the company after the IPO?
Yes, the promoters and promoter group currently own 95,30,800 shares or 79.7% equity stake in the company. Following the IPO, this shareholding will drop to 58.62%.
Is the current management trustworthy? Are there instances of putting shareholders’ interests at risk for personal gains?
Yes, we didn’t find such instances.
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Are the litigations or criminal proceedings against the company insignificant in nature and doesn’t involve big numbers?
No. There are no litigation cases outstanding against Precision Metaliks, its directors, promoters or group entities. There are direct and indirect tax proceedings against the company involving sums of INR3.3 lakh and INR26.84 lakhs, respectively.
Are the company management’s shares free from any pledge with banks or financial institutions?
Yes. As on the date of the prospectus, no promoter shares are pledged.
Are there external investors such as private equity or venture capital firms on board?
No. As mentioned above, the company is largely owned by promoters and promoter group entities. There are external investors in the form of Gayatri Automobile Private Limited and Silver MetalX Inc (one of Precision Metaliks’ customers) but these aren’t established PE/VC firms.
Precision Metaliks IPO Review: Financial performance
Have the company’s revenues grown at a CAGR of at least 10% in the last three years?
Yes. Precision Metaliks’ topline jumped from INR5.3 lakh in FY2019 to INR4,924 lakh in FY2021.
Have the company’s net profits grown at a CAGR of at least 25% in the last three years?
Yes. Precision Metaliks’ earnings surged to INR149.3 lakh in FY2021 from INR0.5 lakh in FY2019.
Has the Average Return on Equity (ROE) in the last three years been more than 15%?
No. The company’s average Return On Net Worth (RONW) in the last three years has been 6.16%.
Has the company maintained positive operating cashflows in the last three years?
Has the company witnessed a declining trend in debt/equity (D/E) in the last three years?
Precision Metaliks has been debt-free in the last three years.
Are the company’s working capital requirements less than 20% of its annual sales?
No. Precision Metaliks requires high working capital. Its working capital requirement stood at 23.4% of its annual revenues in FY2021.
Is the Debt/Equity ratio less than 1?
Yes, the company’s D/E ratio as of 31 March 2021 stood at 0.00.
Precision Metaliks IPO Review: IPO objectives and valuations
Are the IPO objectives in line with the broad corporate guidelines? Funds raised shouldn’t be used for fancy purchases and upgrades.
Yes, the funds will be primarily used to finance working capital requirements.
Is the company offering some discount on Price/Earnings (P/E) ratio compared to its peers?
Yes. The company is offering its shares at the annualized P/E ratio of 14.24. This is cheaper than its peer Remsons Industries.
Is the company offering some discount on Price/Book Value (P/BV) ratio compared to its peers?
Yes, Precision Metaliks’ P/BV is at 3.48 which is less than 4.19 of Remsons Industries.
Are the contingent liabilities less than 10% of latest annual revenues?
Yes. The company has no contingent liabilities.
Precision Metaliks IPO Review gets a score of 17/25. Head to our IPO discussion page to get latest subscription details and check out this page for latest IPO grey market rates.
Disclaimer – The objective behind Precision Metaliks IPO Analysis is to offer an unbiased view of the company’s operations, offer details, strengths, weaknesses, financial performance and valuation. The IPO rating framework helps investors in taking a call if Precision Metaliks IPO is worth investing or not. Nevertheless, this is not an IPO recommendation to subscribe or avoid and the decision to invest should be based on individual investor’s risk profile.