Loyal Equipments IPO – Should you Invest?

Loyal Equipments IPOLoyal Equipments IPO – Should you Invest?

Loyal Equipments IPO opened for subscription, i.e. 3rd July 2015. Loyal Equipments Limited is a designer and manufacturer of pressure vessels, heat exchangers etc.  It plans to raise Rs 2.84 Crores through this IPO. Its revenues has been growing consistently year on year. It earns double digit profits. What else? What are the positive factors in Loyal Equipments Limited Ltd IPO?. Should you invest in this Loyal Equipments IPO? What are the risk factors to be considered before you invest in such IPO’s?

About Loyal Equipments Limited

Loyal Equipments Limited is a designer and manufacturer of pressure vessels, heat exchangers, heavy structural platforms, water tanks, receivers and all types of fabricated items

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Issue details of Loyal Equipments IPO

  • IPO opens: 3-Jul-2015
  • IPO closes: 7-Jul-2015
  • Face Value: Rs 10 per share
  • Issue price: Rs 18 per share
  • Minimum Shares: 8000 shares and in multiples of 8000 shares there-off
  • Minimum amount: Rs 144,000
  • Issue size: Rs 2.84 Crores
  • Lead Managers: Hem Securities Limited
  • Listing: BSE SME
  • Download Loyal Equipments Limited Limited IPO Prospectus here

Purpose of the IPO:

1. To meet working capital requirements

2. To meet issue expenses

Company Financials (reinstated)

  • Company generated revenue of Rs 685.44 Lakh for the year ended Mar-11 and Rs 1,487.21 Lakhs for the year ended Mar-15.  Means it has grown at a CAGR of 17 %
  • Company posted a Profit of Rs 46.77 Lakhs for the year ended Mar-11 and a Profit of Rs 197.69 Lakhs for the year ended Mar-2015.
  • Its EPS for FY 2013-15 is Rs 4.15 and 3 years weighted Avg EPS is Rs 4.37.

Loyal Equipments Ltd IPO-Financials

Reasons to invest Loyal Equipments IPO

  • Good revenue growth in last 5 years. While FY2013-14 revenue grown at just 3% compared to previous year, for FY 2014-15, it has grown by 58% compared to previous financial year.
  • Good profit margins of 11% to 16% in last 3 years. All SME IPO’s has been generating single digit margins.

Reasons not to invest in a Loyal Equipments IPO

  • Company and its Promoter are involved in certain tax proceedings for various assessment years which may result into potential litigation and could have an impact on the business and financial results of the Company.
  • If they are not able to obtain, renew or maintain the statutory and regulatory permits and approvals required to operate business it may have a material adverse effect on its business.
  • Company has allotted Equity Shares during the preceding one year from the date of the Prospectus which is lower than the Issue Price.
  • They do not own the part of the registered Office from which they operate. Any dispute in relation to the rent of its premises would have a material adverse effect on its business and results of operations.
  • Company has not deducted and deposited Provident Fund on payment of daily wages of casual labour employed in its factory.
  • Revenues are dependent on a limited number of its customers. The loss of any of its major Customers or a decrease in the volume of orders may adversely affect its revenues and profitability.
  • Company has taken interest free unsecured loan from its Promoter Director Mr. Alkesh Rameshchandra Patel and Mr. Rameshchandra Nathalal Patel, The total outstanding amount of which as on May 31, 2015 is Rs 42.00 Lacs.
  • Accordingly in case such Promoter recalls the said loan, it may have an adverse affect on company cash flow and financial condition.
  • Promoter Group Entities are engaged in the line of business similar to its Company. There are no non-compete agreements between Company and Promoter Group Entities.
  • We cannot assure that its Promoters and Directors will not favour the interests of Group Entities over company interest or that the said entities will not expand which may increase its competition, which may adversely affect business operations and financial condition of its Company.
  • Promoters have given personal guarantees in relation to borrowings made by the Company from SIDBI and Kotak Mahindra Bank Limited. In event of default on the debt obligations, the personal guarantees may be invoked thereby adversely affecting its Promoter’s, Director’s ability to manage the affairs of the Company and consequently impact its business, prospects, financial condition and results of operations
  • Net cash flows from operating, investing and financing activities have been negative in some years in past. Any negative cash flow in the future may affect its liquidity and financial condition
  • Any penalty or action taken by any regulatory authorities in future for non-compliance with provisions of corporate and other law could impact the financial position of the Company to that extent.
  • Minimum investment required is Rs 1.44 Lakhs to subscribe to this IPO.
  • Other risk factors (Internal and external) can be viewed in prospectus Page no. 12 onwards.

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Recommendation / Investment strategy:

  • At an issue price of Rs 18 and EPS for FY 2014-15 of Rs 4.15, P/E Ratio works out to be 4.33. At an issue price of Rs 18 and weighted average EPS of Rs 4.37, P/E Ratio works out to be 4.12. Means, company is asking issue price in between 4.12 and 4.37 P/E Ratio.
  • Its competitors BEML share price is trading at a P/E Ratio of 661.70 (Highest) and Thejo Engg at P/E Ratio of 7.7 (Lowest) and industry average of 35.80. Hence, issue price of Rs 18 per share is reasonable.
  • Loyal Equipments Limited revenues are growing year in year. Profits are also at 2 digit and good compared to other SME IPO’s which came earlier. Issue price also looks reasonable. Investors can invest in this SME IPO after considering negative points indicated above.

Disclaimer: I may invest in this IPO (depending on my cash flowsmiley). The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy or not to buy. Please consult your investment advisor before you invest in such high risk investment options.

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Loyal Equipments IPO – Should you Invest

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