Aartech Solonics IPO Review

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Aartech Solonics Limited Background

Aartech Solonics was incorporated on August 24, 1982, in Madhya Pradesh. The company is a comprehensive & desirable system solution oriented R&D enterprise in the field of specialized and selected energy appliances.

Aartech Solonics is engaged in the business of creating electricity distribution & control apparatus and the company is ISO  9001: 2015 certified. Their popular products include BTS – 2000, Kranking Ultra Capacitors, Control Rely Panels, etc.

The company is one of the leading manufacturers of BTS 2000 Fast Bus Transfer System in India, which is their flagship product and is a substitute for imported products. It is used in many power plants and process industries.

The company is based in Bhopal and has two manufacturing hubs one at Mandideep, M. P., which is 20 km from Bhopal and another at Parwanoo in Himachal Pradesh. The customSEers of the company belong to many different sectors like Defence, Power Generation, Railways, Oil & Gas Industry, etc.

The business is now coming up with an IPO in order to raise funds for specific business objectives (discussed later).

Aartech Solonics Limited Management Information

Currently, there are 5 Directors on the Board of Aartech Solonics Limited. Mr Anil Anant Raje is the Chairman & Managing Director of the company.

He holds a Graduate degree in Electrical Engineering from MACT  (now MANIT) in the year 1966. He has an experience of more than 40 years in multidimensional aspects of business operations in the power sector.

Aartech Solonics IPO Data Points

Aartech Solonics IPO will open on (undisclosed) and close for subscription on (undisclosed).

The IPO size will be of 21.2 lakh Equity shares and the face value shares will be ₹10 each share. The Price Band per equity share has been set at ₹34 including a share premium of ₹24 per equity share. The offer price is 3.4 times the face value of the equity shares.

The IPO size is expected to be up to ₹720.8 lakh. Out of these 21,20,000 shares, 1,08,000 shares, aggregating up to ₹36.72 lakh will be reserved for market makers and the rest 20,12,000 equity shares,  aggregating up to ₹684.08 lakh will be issued to investors, out of which 10,06,000 equity shares, aggregating up to ₹342.04 lakh will be allocated to retail investors.

The market lot size is of (undisclosed) equity shares and the shares will be listed on the National Stock Exchange (NSE).

Pursuant to a resolution passed at the meeting held on December 27, 2017, the issue has been authorised by the Board of Directors and pursuant to a special resolution of the shareholders at the Extraordinary General Meeting held on February 7, 2018, the issue has been approved by them.

Aartech Solonics Limited Financial Performance

Total revenues decreased from ₹1342.05 lakhs in the financial year ended March 31, 2017, to ₹1208.50 lakhs in the financial year ended March 31, 2018. Total assets also decreased from ₹1945.78 lakhs to ₹1938.08 lakhs during the same period.

 

It is interesting to note that despite the decrease in revenues, the profit after tax figure has increased tremendously from ₹30.09 lakhs in fiscal 2017 to ₹117.58 lakhs in fiscal 2018. It raises concerns and is yet to be seen if the company is able to sustain such high rates of growth.

The return on net worth of the company for the years ended March 31, 2016, March 31, 2017, and March 31, 2018, is 1.39%, 1.79% and 5.45% respectively.

Aartech Solonics IPO Objectives

The main objectives of the Aartech Solonics IPO are as follows –

• For investment in two wholly owned subsidiaries of the company namely “M/S AIC Aartech Solonics Private Limited” and “M/S Faradigm Ultracapacitors Private Limited”
• For funding the working capital requirements of the company
• For meeting expenses related to the general corporate operations.

Other than the above-mentioned objectives, the company will also benefit in terms of enhanced corporate image, brand name and increased visibility through Aartech Solonics IPO.

Aartech Solonics IPO Events

Aartech Solonics Limited filed the Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI) on September 10, 2018, for the Fixed Price IPO. The offer will open on (undisclosed) and close on (undisclosed).

The finalisation of basis of allotment is expected to happen by (undisclosed) and the initiation of refunds is expected to start by (undisclosed). The transfer of shares to demat accounts is expected to start on (undisclosed) and the expected listing date will be (undisclosed).

Aartech Solonics IPO Recommendation

Now, let us try to understand different aspects of the company that are related to the strengths and risks of the business.

Their focus on project execution to maximize operating margins over a period of years is a big strength of the company and they also intend to focus more on the same in future for better results.

They are in this field for more than 20 years and have executed projects ranging from small residential projects to large industrial projects. Their experience acts as a big strength for the company.

They try to achieve customer satisfaction regularly by analyzing their existing processes, finding out the areas of bottlenecks and trying to fix the same.

The company also focuses on Research and Development efforts for bringing improved products and technologies. Aartech Solonics also puts efforts in reducing wastage and controlling the fabrication on the production floor with the help of strict supervision at their manufacturing plants.

There are some opportunities for the future of the company like to expand the number of sectors they cater to and provide their solutions to sectors such as hydro and solar. Also, they have the opportunity to become the first Ultracapacitor manufacturing unit in India through one of their subsidiary company.

Now, let us discuss the risks related to the business of Aartech Solonics Limited.

The company, its group company, promoters, Directors, etc. are involved in certain legal proceedings at different stages and any adverse ruling in them may pose a risk to the overall profitability of the company.

The company is unable to trace some corporate secretarial record for transfer and allotment of equity shares before 2006 due to which there could be some penalties imposed on the company. Aartech Solonics has not filed some forms relating to registering the resolutions in Registrar of Companies.

The company’s office and manufacturing unit are on the lease and not owned. Any termination of the agreement may result in adverse effects on the company.

The nature of the business of the company is such that it requires regulatory permits, licences, approvals on a regular basis and any failure in getting these may adversely affect the operations and profitability of the company.

The associate and group company of Aartech Solonics has incurred losses in the past and any such losses in operations in the future may affect the overall financial health of the group. The company might be affected due to strikes by workers or stoppages or increased wage demands from the labour.

The business of the company is mainly B2B in nature due to which the results of the company may be adversely affected as the size of the market is quite small and the scope is limited.

The company is also indirectly exposed to the risk related to the power sector in India as the revenues of the company are significantly dependent on business from State Electricity Board.

Also, the company is subject to risks related to fluctuations in exchange rates.

The insurance coverage is not sufficient to cover against some operating risks which poses a risk for the operations and profitability of the company. The company does not have any alternate source of funds for meeting the objectives of the IPO due to which the company’s growth can be jeopardised if the issue is not able to raise the desired amounts of funds.

Changes in technology, some discrepancies in some of the corporate records pose another risk for the company. Also, the sudden increase in PAT in fiscal 2018 as compared to the previous one raises concerns.

After analysing various aspects of the company, it can be said that the investors must remain cautious and go through the Draft Red Herring Prospectus for further details about the company. Investors may choose to subscribe to Aartech Solonics IPO.

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Aartech Solonics IPO Advisors Information

Swastika Investmart Limited is acting as Book Running Lead Manager to the issue. Bigshare Services Private Limited is acting as the Registrar for the Aartech Solonics IPO.