Another SME company, Quality RO Industries Limited is coming up with its IPO. So today, let’s discuss the company’s business prospects in relation to the IPO.
About the Quality RO Industries Limited
Quality RO Industries Limited is engaged in the business of manufacturing, marketing and supplying components for water purifiers and softener equipments. The water purifier parts are designed to make proper fitting for RO plants and systems of different varieties. The company produces products according to the industry standards. The company also provides logistics services on a contractual basis to a few local infrastructure companies. The company’s registered office is situated in Vadodara, Gujarat. The company also makes sales through online platforms. The company’s Chairman and Managing Director; Mr. Vivek Dholiya has four years of experience in this industry. In a nutshell, the company is engaged in the following areas:
- Manufacturing of water softener equipment.
- Contract manufacturing
- Trading of RO equipment spares and associated products
- Contractual logistics to local infrastructure and manufacturing companies.
Details about the IPO
The following are the details about the IPO:
- The company’s IPO will open for subscription on January 27, 2022 and will close on February 1, 2022.
- The IPO is a fixed price issue and the IPO issue price is fixed at ₹51 per equity share.
- The company will list on the BSE SME segment.
- Each market lot consists of 2000 shares and a retail individual investor can apply up to 1 lot each.
- The company will issue 5, 30,000 equity shares of ₹10 each. All the IPO proceeds will go to the company as it is a fresh issue.
- The promoter holding will come down to 60.93% post the IPO from the current 84%.
- The listing of shares is expected to take place on February 09, 2022.
Based on the issue price, the company is valuing its shares at a P/E ratio of 113, which is very high considering the company’s short operating history.
Objectives of the IPO
The following are the objectives of the company to come up with an IPO:
- The company will deploy ₹1.4 crores towards capital expenditure requirements.
- The company will use ₹0.5 crore to meet the incremental working capital requirements.
- The company will use ₹0.24 crores for general corporate expenses.
- The company will use ₹0.56 crores towards meeting the public issue expenses.
Further, the company believes that listing its shares on the exchanges will help it to improve its corporate and brand image.
Key strengths
The following are the key strengths of the company:
- According to its prospectus, the company has an experienced management team that is well-qualified to lead them further.
- As the company maintains timely delivery of orders to their customers along with consistency in quality, it has been able to get repeat orders from its customers.
- The company has well-established relationships with its suppliers which help them in getting quality and timely supplies of raw materials.
- The company continuously takes steps to ensure adherence to timely fulfillment of orders and also achieving cost efficiency.
Key risks
The following are the key risks that the company faces in its business:
- The company was incorporated on September 30, 2021 and thus has a limited operating history.
- The company’s manufacturing process requires substantial amount of power facilities. Failure to get uninterrupted power supply could disrupt the company’s business.
- The company has not yet applied for the registration of their logo.
- There are outstanding legal proceedings against the company promoters. Any adverse outcome in this aspect could disrupt the company’s business.
- As of November 2021, the company has negative cashflow from operations on its books.
Also Check: Check IPO GMP
Fundamentals of the company
The following are the fundamentals of the company:
- As of November 2021, the company had assets worth ₹25.02 million.
- As of November 2021, the company had earned revenues worth ₹1.67 million.
- As of November 2021, the company had profit after tax of ₹0.14 million.
- At the end of same period, the company had an equity capital of ₹14 million and a net worth of ₹15.8 million.
- As of November 2021, the company had earnings per share of ₹0.11.
- The company has a return on equity and return on capital employed of 2% each.
Peer comparison
According to its prospectus, the company believes that there are no listed companies in India which is engaged in manufacturing of RO products. Hence, a direct comparison with peers is not possible in this regards.
Conclusion
Following were the details of the Quality RO Industries IPO. Given that the company is asking for a very high P/E, investors can give this IPO a miss as its operating history is very short and the profitability margins are not impressive at all. Investors can wait and watch the company’s performance over several years and can then consider this company post its listing.
