Readymix Construction Machinery Ltd. (RCML), an engineering-driven company specializing in plant and machinery solutions, is launching its maiden IPO to raise INR 37.66 crore. The issue opened for subscription on February 6, 2025, and closes on February 10, 2025, with a price band of INR 121-INR 123 per share. Post allotment, the shares will be listed on NSE SME Emerge.
Company Overview
RCML provides turnkey solutions for designing, developing, and installing industrial plants across the cement, concrete, and construction sectors. It also offers after-sales services, annual maintenance contracts, and consultancy for plant optimization. As of January 10, 2025, the company had an order book worth INR 29.19 crore.
IPO Structure & Utilization of Funds
The IPO comprises 30.62 lakh equity shares, constituting 27.94% of the post-IPO paid-up capital. The company plans to use INR 5.25 crore for loan repayments, INR 24.05 crore for working capital, and the rest for general corporate purposes. Hem Securities Ltd. is the lead manager, with Hem Finlease Pvt. Ltd. acting as the market maker.
Financial Performance & Concerns
RCML’s revenue has shown steady growth, rising from INR 47.83 crore in FY22 to INR 69.85 crore in FY24. Net profit surged from INR 1.33 crore to INR 9.29 crore during the same period. However, the sharp jump in FY24 profits raises concerns about its sustainability. For the nine months ended December 31, 2024, net profit stood at just INR 1.04 crore on a revenue of INR 35.50 crore, indicating a sharp decline in margins.
The company’s profit margins have fluctuated, with PAT margins at 2.78% in FY22, 13.30% in FY24, and dropping to 2.94% in 9M-FY25. Similarly, RoCE declined from 48.96% in FY24 to just 6.01% in 9M-FY25, signaling inconsistent profitability.
Valuation & Investment Consideration
At the upper price band of INR 123, the IPO demands a P/E of 96.85 based on FY25 annualized earnings, making it highly expensive. Even considering FY24’s peak earnings, the P/E stands at 14.52. The issue is priced at a P/BV of 4.91, further highlighting aggressive valuation. Additionally, rising debtor days and fluctuating earnings raise red flags.
RCML’s IPO is a high-risk bet, given its inconsistent profit margins, aggressive valuation, and uncertain earnings sustainability. Investors may prefer to stay on the sidelines and explore more stable opportunities.
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