What you must know about Konstelec Engineers IPO?

Konstelec Engineers Ltd was incorporated in the year 1995 as an engineering, procurement, and construction (EPC) company. The company offers a wide gamut of services that range from engineering and drawings, procurement, operations and maintenance, project management and construction and commissioning. Some of the key industries that the company caters to for through its EPC business include oil & gas, engineering, ports, power, steel, textiles, pharmaceuticals, and cement. It also has a rich spread of clients across the industry spectrum. Some of its key clients include marquee names like ONGC, Indian Oil, HPCL, BPCL, Chennai Petroleum, Essar Group, JSW Steel, Bhushan Group, Reliance Industries, ACC, Bombay Rayons & Fashions, Engineers India, Gammon India, TCS, Binani group and Toyo Engineering among others.

Key terms of the Konstelec Engineers IPO (SME)

Here are some of the highlights of the Konstelec Engineers IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 19th January 2024 and closes for subscription on 23rd January 2024; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book built issue. The price band for the book built issue has been set in the range of ₹66 to ₹70 per share. The final price of the IPO will be decided by book building within this price band. It is a Book Building issue INVIT.
   
• The IPO of Konstelec Engineers Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that 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, Konstelec Engineers Ltd will issue a total of 41,00,000 shares (41.00 lakh shares), which at the upper band of the book building band of ₹70 per share aggregates to fresh fund raising of ₹28.70 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 41,00,000 shares (41.00 lakh shares) which at the upper IPO band price of ₹70 per share will aggregate to overall IPO size of ₹28.70 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 2,06,000 shares. The market maker for the issue is yet to be announced officially. 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 Biharilal Ravilal Shah and Amish Biharilal Shah. The promoter holding in the company currently stands at 91.65%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 66.77%.
   
• The fresh issue funds will be used by the company for meeting the working capital needs of the company. Part of the monies raised will also go towards general corporate expenses of the business.
   
• Beeline Advisors Private Ltd will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is yet to be officially announced.

IPO allocation and minimum lot size for investment

Konstelec Engineers Ltd has already announced the market maker allocation at 3,72,000 shares as inventory for market making. Giriraj Stock Broking Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Konstelec Engineers Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (2,000 x ₹70 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 4,000 shares and having a minimum lot value of ₹280,000. 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.

Key dates to be aware of in the Konstelec Engineers IPO (SME)

The SME IPO of Konstelec Engineers IPO opens on Friday, 19th January 2024 and closes on Tuesday, 23rd January 2024. The Konstelec Engineers IPO bid date is from 19th January 2024 at 10.00 AM to 23rd January 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 23rd January 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 January 25th 2024, will be visible to investors under the ISIN Code – (INE0QEI01011).

Financial highlights of Konstelec Engineers Ltd

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

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenues have grown about 45% in the last 2 years, but the latest year growth has been really sharp. Hence CAGR growth over two years is still moderate. Also, the PAT margins have improved to above 5.02% only in the latest year, despite the PAT growing sharply in the last 2 days.
   
• While the company has reported moderate net margins, ROE and return on assets in the latest year, the numbers in the previous years are fairly tepid. Hence, only the latest year data can be really considered for taking any view on valuations.
   
• The asset turnover ratio or the sweating ratio has been above 1 and combined with the ROA picture, it does give a good picture of the overall asset utilization story.

The company has latest year EPS of ₹7.07 and previous data may not really be comparable. Either ways, the valuations look reasonable if you consider latest year EPS. At 9.9X P/E ratio discount, the downside risk is not much, especially considering the strong client base that the company has and its established and stable business model. Apart from the numbers, the company also brings to the table some inherent qualitative strengths to the table. It has a comprehensive service offering in the EPC space, there is a high commitment to quality and the business spread and client base has resulted in strong relationships. That is likely to be an entry barrier for any competition in the industry. Investors can look at the IPO with a longer term perspective of 1 year or more, subject to having a higher risk appetite.