H.M. Electro Mech Limited, an infrastructure company specializing in water and wastewater projects, is launching its HM Electro Mech Ltd IPO on January 24, 2025.
IPO Details:
- Opening Date: January 24, 2025
- Closing Date: January 28, 2025
- Basis of Allotment Finalization: January 31, 2025
- Refunds Initiation: February 1, 2025
- Demat Account Credit Date: February 2, 2025
- Listing Date: February 3, 2025
- Price Band: ₹71 to ₹75 per share
- Lot Size: 1,600 shares
- Total Issue Size: 36,99,200 shares, aggregating up to ₹27.74 crores
- Listing: BSE SME, with a tentative listing date of January 31, 2025
Allocation:
- Qualified Institutional Buyers (QIB): Up to 50% of the net issue
- Non-Institutional Investors (NII): At least 15% of the net issue
- Retail Individual Investors (RII): At least 35% of the net issue
Financial Highlights:
- Revenue Growth: Increased from ₹4,696.89 lakhs in 2021 to ₹7,526.67 lakhs by December 2023
- Profit Margins: Gross profit margin at 16.42% and EBITDA margin at 10.65%
HM Electro Mech Ltd IPO Company Overview:
Established in 2003 and headquartered in Ahmedabad, Gujarat, H.M. Electro Mech Limited has evolved from focusing on water supply schemes to diversifying into electrification projects for Indian Railways, nationalized banks, and municipal corporations. The company has also ventured into Engineering, Procurement, and Construction (EPC) projects, including cross-country pipelines and water treatment plants.
Key Clients:
The company’s clientele includes state and central governments, municipal corporations, the banking sector, and educational institutions. Approximately 80% of its revenue is generated from projects within Gujarat, with strategic expansions into Rajasthan, Maharashtra, Madhya Pradesh, Karnataka, Punjab, and Chandigarh.
IPO Objectives:
The funds raised through the IPO will be utilized to meet working capital requirements and for general corporate purposes.
Application Details:
- For High Net-worth Individuals (HNI): Minimum of 2 lots (3,200 shares) totaling ₹2,40,000
Investors can apply for the IPO via ASBA online through their bank accounts or UPI through stock brokers.
HM Electro Mech Ltd IPO Positives:
(1) Strong Focus Area:
The company operates in water and wastewater infrastructure projects, a sector with significant government backing and growth potential, especially with urbanization and smart city initiatives.
(2) Diverse Project Portfolio:
HM Electro Mech has expanded into electrification projects, EPC contracts, cross-country pipelines, and water treatment plants, showcasing its ability to diversify and scale operations.Steady Financial Growth:
(3) Steady Financial Growth:
- Revenue has shown consistent growth from ₹4,696.89 lakhs in 2021 to ₹7,526.67 lakhs as of December 2023.
- Gross profit margins are decent at 16.42%, and EBITDA margins stand at 10.65%, indicating efficient cost management.
(4) Experienced Management Team:
The company benefits from seasoned leadership with over two decades of industry experience.
(5) Regional Presence with Expansion Potential:
While the majority of revenue is generated from Gujarat, the company has strategically forayed into neighboring states, allowing for potential business growth across India.
HM Electro Mech Ltd IPO Concerns:
(1) Dependence on Government Projects:
A significant portion of its revenue comes from government contracts, making it vulnerable to policy changes, delayed payments, and budgetary constraints.
(2) Competition:
The company faces stiff competition from established players in the infrastructure and EPC sectors, which could impact margins and growth opportunities.
(3) Sector Risks:
Infrastructure projects are often exposed to execution delays, cost overruns, and regulatory hurdles, which can affect profitability.
(4) Valuation Concerns:
At a price band of ₹71-75 per share and a market capitalization of approximately ₹98 crores post-issue, the valuation may appear stretched compared to its peers in the SME segment.
(5) IPO for Working Capital:
A significant portion of the IPO proceeds will be used for working capital requirements, which indicates tight liquidity and limits direct investment into growth-driving initiatives.
HM Electro Mech Ltd IPO Financial Metrics:
- P/E Ratio: At the upper price band of ₹75, the P/E ratio is approximately 15.42x, which aligns with the SME industry average but may seem high given the associated risks.
- Debt Levels: While debt levels are manageable, any future increase in borrowings could strain profitability.
Recommendation:
(1) For Long-term Investors:
Investors looking to capitalize on the infrastructure sector’s growth and the company’s niche expertise in water and electrification projects may find this IPO appealing.
(2) For Risk-tolerant Investors:
The SME nature of the IPO inherently carries higher risks, making it suitable for those willing to accept potential volatility in returns.
(3) Retail Investors:
While the lot size of ₹1,20,000 is high, retail investors confident in the company’s growth story can consider it, but they should be cautious about valuation concerns and the sector’s cyclical nature.
Overall Rating:
Neutral to Positive – Ideal for investors with a medium to long-term horizon who understand the risks associated with SME IPOs. Conduct thorough due diligence before making an investment decision.
HM Electro Mech Ltd Returns
H.M. Electro Mech Limited (HMEML) has demonstrated significant financial growth in recent years. Below is a summary of their financial performance:
| Financial Metric | FY 2021 | FY 2022 | FY 2023 | 9 Months Ended Dec 31, 2023 |
| Total Revenue (₹ Cr) | 47.20 | 62.03 | 101.67 | 75.35 |
| Profit After Tax (₹ Cr) | 2.02 | 2.58 | 6.01 | 5.28 |
| Total Assets (₹ Cr) | 31.60 | 44.34 | 64.08 | 63.93 |
| Net Worth (₹ Cr) | 15.49 | 18.07 | 24.08 | 29.36 |
| Reserves & Surplus (₹ Cr) | 5.49 | 8.07 | 14.08 | 19.36 |
| Total Borrowings (₹ Cr) | 1.52 | 0.18 | 6.40 | 14.48 |
These figures indicate a consistent increase in revenue and profitability, reflecting HMEML’s expanding operations and financial health.
HM Electro Mech Ltd IPO Strengths:
(1) Consistent Revenue and Profit Growth:
- HMEML has shown steady growth in both revenue and profit over recent years. 2023, the company reported ₹101.67 crore in revenue and ₹6.01 crore in profit after tax, demonstrating strong operational performance.
(2) Diversified Service Offerings:
- The company provides a range of services in the infrastructure sector, including pumping machinery supply, electrification, and EPC services. This diversification provides resilience against market fluctuations.
(3) Strong Market Position:
- HMEML has worked on large-scale government and private sector infrastructure projects, enhancing its credibility in the market. This could support future business growth.
(4) Government Infrastructure Initiatives:
- The company is poised to benefit from the government’s ongoing focus on infrastructure development, such as water treatment plants, pipelines, and electrification projects.
(5) Strong Management and Track Record:
- With over 20 years of experience, HMEML has an established track record of successful project execution and growth.
HM Electro Mech Ltd IPO Risks:
(1) Competition:
- The infrastructure and EPC sectors are highly competitive, with many players in the market. Intense competition could put pressure on HMEML’s margins and market share.
(2) Dependence on Government Projects:
- A significant portion of HMEML’s revenue is derived from government contracts. Any delays, policy changes, or cutbacks in government spending could impact the company’s performance.
(3) Profitability Pressure:
- Despite past profitability, the company faces potential pressure on margins due to the rising cost of raw materials, labor, and potential delays in projects.
(4) Limited Geographic Reach:
- The company’s operations are mostly concentrated in specific regions. Expansion into new markets or geographies might be challenging and require additional capital investment.
(5) Financial Leverage:
- While the company’s borrowing has been manageable, HMEML carries some debt, which could increase financial risk, especially in the event of an economic downturn or project delays.
(6) IPO Market Sentiment:
- The current Grey Market Premium (GMP) for HMEML’s IPO is ₹0, which suggests a neutral sentiment. Market sentiment and investor interest might affect the IPO’s performance post-listing.
Conclusion:
HM Electro Mech Ltd has a promising business model, supported by a strong presence in the infrastructure sector and consistent growth. However, potential investors must weigh the risks, particularly related to competition, dependency on government contracts, and market volatility. Conducting thorough research and considering risk tolerance is crucial before making an investment decision in the IPO.
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