Trom Ind. NSE SME IPO review (Apply)

Review By Dilip Davda on July 24, 2024

•    The company is a solar EPC company with a proven track records.
•    It operates on an asset lite model, which gives an edge against other players.
•    Based on FY24 super earnings, the issue appears reasonably priced. 
•    According to the management, FY24 trends are indicative of likely scenario going forward.
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Trom Industries Ltd. (TIL) is a Solar EPC (Engineering, Procurement, and Construction) company specializing in residential solar rooftop, industrial solar power plants, ground-mounted solar power plants, and solar street lights. Trom is engaged in the comprehensive development of diverse solar projects. For residential rooftop installations, Trom designs and implements solar systems tailored to individual homes. In the industrial sector, the Company scales up operations to design and construct larger solar power plants catering to industrial needs. Ground mounted solar power plants involve the development of solar arrays on open land. Additionally, the Company extends its services to include the Supply and Installation of solar street lights for public and commercial areas.

TIL’s business encompasses engineering design, procurement of materials, on-site construction, project management, and adherence to regulatory standards across various sectors. Its solar applications contribute to the growth of sustainable energy solutions across residential, industrial, public domains and government sector. Also, its business operations encompass the extensive trading and distribution of a diverse range of products, including solar panels, inverters, and an array of materials intricately connected to the establishment and functioning of solar power plants. Furthermore, it is also engaged in the trading of all types of footwear to a very small scale during the period. It is actively engaged in the development of green hydrogen projects as a pivotal aspect of its future business endeavors. TIL’s warehouse is located at Plot No. B/53-A, G.I.D.C Electronics Estate, Sector No. 25, Gandhinagar-382024, Gujarat, India. As  of March 31, 2024, it had 34 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2727600 equity shares of Rs. 10 each to mobilize Rs. 31.37 cr. at the upper cap. It has announced a price band of Rs. 100 – Rs. 115 per share. The issue opens for subscription on July 25, 2024, and will close on July 29, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.66% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 16.53 cr. for working capital, Rs. 4.50 cr. capex for setting up of solar power plant, and the rest for general corporate purposes.

The issue is solely lead managed by Expert Global Consultants Pvt. Ltd., and KFin Technologies Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for the company. 15% of the issue is underwritten by Expert Global and 85% by Sunflower Broking.

Post-IPO, company’s current paid-up equity capital of Rs. 6.47 cr. will stand enhanced to Rs. 9.20 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 105.74 cr.

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 2537 in March 2024. It has also issued bonus shares in the ratio of 250 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 6.30, and Rs. 6.35 per share.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ – (loss) of Rs. 30.57 cr. / Rs. 0.36 cr. (FY22), Rs. 24.14 cr. / Rs. 0.29 cr. (FY23), Rs. 54.55 cr. / Rs. 5.73 cr. (FY24). The company posted inconsistency in its top and bottom lines for the reported periods. The sudden boost in its bottom line for FY24 raises eyebrows and concern over its sustainability considering the rising competition. According to the management, their major order in FY23 that was released in March 2023, but the material for the same got delayed and thus higher top line for FY24 it attributed to this shift. However, it has good orders on hand which are to be completed in coming two to three months. Its client list included Amul, ONGC, GMDC, RIL, Gail, Maruti, Toyota, Vedanta, Government of India, Honda etc.

For the last three fiscals, it has reported an average EPS of Rs. 5.06, and an average RoNW of 45.95%. The issue is priced at a P/BV of 6.08 based on its NAV of Rs. 18.90 as of March 31, 2024, but its post-IPO NAV data is missing from IPO price band ad.

For the reported periods, the company has posted PAT margins of 1.19% (FY22), 1.20% (FY23), 10.54% (FY24), and RoCE margins of 27.0%, 16.1%, 45.8% respectively for the referred periods.

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 18.46, and based on FY23 earnings, the P/E stands at 370.97. Based on FY24 earnings, the issue appears reasonably priced. According to the management, considering the continued higher spending for solar power and the ongoing trends, the company is confident of maintaining the growth trends. The company is purely an EPC related service provider and operates on asset lite model.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a prudent dividend policy in March 2024, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Alpex Solar, Australian Premium Solar, and Solex Energy, as their listed peers. They are trading at a P/E of 91.2, 163.0 and 146.0 (as of July 24, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 11th mandate from Expert Global in the last three fiscals (including the ongoing one), out of the last 10 listings, 1 opened at discount, 1 at par and the rest all listed with premiums ranging from 16.44% to 90% on the date of listing.