12/07/2017 Salasar Techno Engineering IPO Review: Techno viable?

- IPO Central

Salasar Techno Engineering IPO Review:

Techno viable?
By Krishna Bagra - July 10, 2017

Salasar Techno Engineering IPO opens next week and it will be interesting to see this public
offer which is among the smallest IPOs in recent times. In many ways, this is a reminder to
the numerous IPOs in the decade of 90s. Priced at INR108 per share, Salasar Techno
Engineering IPO aims to raise INR35.86 crore. The IPO will open on 12 July and investors
can place their orders till 17 July. The IPO will be managed by Sarthi Capital Advisors while
Bigshare Services will be the registrar. Through Salasar Techno Engineering IPO review, we
try to find out if throwback to the bygone era deserves a serious consideration.

Here are some essential details about the IPO.

Salasar Techno Engineering IPO details

Subscription Dates 12 17 July 2017

Price Band INR108 per share

Fresh issue 3,321,000 shares (INR35.86 crore)

Offer For Sale Nil

Total IPO size 3,321,000 shares (INR35.86 crore)

Minimum bid (lot size) 125 shares

Face Value INR10 per share

Retail Allocation 50%

Listing On NSE, BSE

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Salasar Techno Engineering IPO Review: Use of funds

As mentioned above, the upcoming IPO will raise just INR35.86 crore and this entire
money will go to the company. Out of the total, INR31.87 crore will go towards working
capital requirement while INR2.5 crore have been earmarked for general corporate
purposes.

Salasar Techno Engineering: Business background

Established in 2001, the company offers customised steel fabrication and infrastructure
solutions for Telecommunication Towers, Transmission Towers & Substation Structures and
Solar Module Mounting Structures. As one can imagine, this requires supply of customized,
high-quality material and the companys service suit includes engineering, designing,
fabrication, galvanization and deployment of these products.

The company commenced its manufacturing/fabrication activities in the FY2006/07 and its
second unit became operational in FY2008/09. Salasar Techno Engineering recently
increased its installed annual manufacturing/fabrication capacity from 50,000 MT to
100,000 MT with the installation of new galvanizing plant at Salasar Stainless Limited, a
wholly-owned subsidiary.

UP Power Transmission Corporation Ltd, Tata Power Delhi Distribution Ltd, Unitech Power
Transmission Ltd, ATC India Tower Corporation Pvt Ltd, Indus Towers Ltd, ATC Telecom
Infrastructure Pvt Ltd, Bharti Infratel Ltd, Reliance Jio Infocomm Ltd, Tower Vision India
Pvt Ltd, Viom Networks Ltd, Jakson Engineers Ltd, Prayatna Developers Pvt Ltd, and
Welspun Renewables Energy Pvt Ltd are some of its prominent clients.

Salasar Techno Engineering IPO Review: Financial

performance
As the description above indicates, Salasar Techno Engineering is into a business that is not
easily scalable. Yet, the company has managed to grow its revenues from INR212.9 crore
in FY2013 to INR384.6 crore in the latest year. This is quite impressive as majority of the
growth has come from the single activity of erecting telecom and transmission towers.

The company has negligible long-term debt and this has helped in shoring up profits in
these years. Earnings grew from INR4.9 crore in FY2013 to INR20.7 crore in FY2017. Once
again, commendable job! As a result of growing profits and a strong control on costs,

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margins have been improving after hitting a low of 1.9% in FY2015. In the latest year
ended 31 March 2017, net margin stood at solid 5.4%.

Salasar Techno Engineerings financial performance (in INR crore)

FY2013 FY2014 FY2015 FY2016 FY2017

Total revenue 212.9 292.6 330.4 310.2 384.6

Total expenses 205.8 282.3 318.1 292.8 354.1

Profit after tax 4.9 6.3 6.3 11.0 20.7

Net profit margin (%) 2.3 2.2 1.9 3.5 5.4

Salasar Techno Engineering IPO Review: Should you

subscribe?
Salasar Techno Engineering belongs to the core industrial activity sector where economies
of scale are essential but doesnt ensure success alone. As a result, it is clear what the
company has achieved in its 16 years of business is phenomenal. However, the absence of
private equity investors shows that the business doesnt hold promise of providing outsized
returns in future and thus, isnt particularly attractive to them. However, whats not
attractive for private equity investors may be lucrative for retail investors.

In terms of valuations, the issue price of INR108 per share and its consolidated EPS of
INR20.83 mean that the P/E ratio is an attractive 5.2. This is much lower than comparable
figures of 18.1 and 19.5 for Kalpataru Power Transmission and KEC International,
respectively. Salasar Techno Engineering also boasts of a strong return on net worth
(RONW) of 21.6% which is higher than most of its listed peers.

Without doubt, valuations look very attractive for Salasar Techno Engineering. However, it
is worth noticing that this small IPO will be eventually listed in the T group which effectively
means more restrictions on price movements and less attractiveness for investors. Past
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listings in this group have been mixed with GNA Axles making a strong debut but Pennar
Engineered Building Systems ended in a soup. Another question investors need to ask is
if they want to own a low-margin business which has limited scope for further growth. Once
again, there is nothing wrong with low-margin businesses provided there is scale to be
leveraged. In absence of economies of scale, a business may be good for promoters but
not necessarily for small shareholders.

All in all, Salasar Techno Engineering IPO Review reveals that the company has witnessed
strong growth in its operations and improving margins also strengthen its case. However,
small operations and listing in T group mean a longer term perspective is required.

REVIEW OVERVIEW

Salasar Techno Engineering IPO Review

3
SUMMARY

Salasar Techno Engineering IPO Review reveals that the company has witnessed strong growth in
its operations and improving margins also strengthen its case. However, small operations and listi
ng in T group mean a longer term perspective is required.
OVERALL SCORE

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