Shigan Quantum has started its IPO today and it will remain open through 3 March 2022. The company – a manufacturer of CNG, LNG and Hydrogen Fuel Kit systems for the automotive industry – is looking to raise as much as INR 22.7 crore by issuing 45,39,000 shares at the rate of INR50 per share. We have gone through the prospectus to better understand the company and have analyzed its operations on 25 parameters. Here is Shigan Quantum IPO Review in a nutshell, please scroll down for the detailed view.
Shigan Quantum IPO Review
Shigan Quantum IPO Review: Business Basics
Are the company’s annual revenues more than INR50 crore?
Yes, Shigan Quantum (website) had revenues of over INR90 crore in FY2021.
Are the company’s annual profits after tax in excess of INR5 crore?
No, Shigan Quantum’ net earnings after tax stood at INR3.51 crore in FY2021. While net profits for 5 months in FY2022 were at INR2.89 crore, these shouldn’t be taken on face value as the duration is less than 6 months.
Has the company got a strong and recognizable brand?
No, Shigan Quantum supplies its products to automotive clients and primarily operates in B2B segment where competitive pricing is far more important than branding.
Is there a strong moat in place in the form of entry barriers, market reach etc?
Yes, Shigan Quantum Technologies operates in a highly competitive and capital intensive segment. These requirements, along with technical know-how, act as formidable entry barriers.
Is the company free of big client risks in terms of impact on revenues?
No. Shigan Quantum’s top 10 customers contributed 99.86% of its revenues in FY2021. This clearly highlights the company’s dependence on a few clients.
Do exports contribute a sizeable chunk to annual revenues, giving the company an edge over its competitors?
No, only 0.05% revenue of Shigan Quantum came from exports during FY2021.
Is there a strong connect between the company and retail consumers?
No. As mentioned above, the company is primarily a B2B player with very little direct interface with retail consumers.
Shigan Quantum IPO Review: Management Analysis
Is the company’s top management experienced enough to lead operations through difficult times?
Yes, the company’s promoters Mr. Shishir Agrawal and Mr. Gagan Agrawal have been associated with the company since 2008 and have rich experience in the automotive industry.
Are the management members/promoters paying themselves fairly without jeopardizing shareholders’ interests?
Yes. Both promoters were paid INR98 lakhs each in FY2021 which is high but this figure is now curtailed to INR42 lakhs for FY2022.
Do the promoters have sizeable equity left in the company after the IPO?
Yes, the promoters and promoter group currently own 100% equity stake in the company. Following the IPO, this shareholding will drop to 73.63%.
Is the current management trustworthy? Are there instances of putting shareholders’ interests at risk for personal gains?
We didn’t find instances of the management compromising shareholders’ interests.
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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 Shigan Quantum, its directors, promoters or group entities. There are direct tax proceedings against the company involving sums of INR17 lakh.
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 fully owned by promoters and promoter group entities. There are no external investors.
Shigan Quantum IPO Review: Financial performance
Have the company’s revenues grown at a CAGR of at least 10% in the last three years?
Yes. Shigan Quantum’ revenue jumped from INR69.1 crore in FY2019 to INR96 crore in FY2021.
Have the company’s net profits grown at a CAGR of at least 25% in the last three years?
No. Shigan Quantum’ earnings was INR2.66 crore in FY2019 and INR3.51 crore in FY2021, growing at a CAGR of 14.9%.
Has the Average Return on Equity (ROE) in the last three years been more than 15%?
Yes. The company’s average Return On Net Worth (RONW) in the last three years has been 25.1%.
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?
Yes. The company’s D/E declined from 0.84 in FY2019 to 0.52 in FY2021.
Are the company’s working capital requirements less than 20% of its annual sales?
No. Shigan Quantum required INR19.6 crore working capital in FY2021. Its working capital requirement stood at 20.4% of its annual revenues in the year.
Is the Debt/Equity ratio less than 1?
Yes, the company’s D/E ratio as of 31 March 2021 stood at 0.52.
Read Also: Find the Prospectus of Shigan Quantum Here
Shigan Quantum 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, purchase new machinery and general corporate purposes.
Is the company offering some discount on Price/Earnings (P/E) ratio compared to its peers?
The company is offering its shares at a P/E ratio of 18.04 which is reasonable. While there are no direct competitors listed, we noticed similar-sized ancillary plays like JMT Auto and Kinetic Engineering trade at higher valuations.
Is the company offering some discount on Price/Book Value (P/BV) ratio compared to its peers?
Yes, Shigan Quantum’ P/BV is at 2.03 which is less than the multiples for JMT Auto and Kinetic Engineering.
Are the contingent liabilities less than 10% of latest annual revenues?
Yes. The company has no contingent liabilities.
Disclaimer – The objective behind Shigan Quantum 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 Shigan Quantum 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.