Understanding the Latest IPO Trends: A Deep Dive into Nexus3

IPOs on Main Board IPO, including Bajaj Housing Finance and insights on shareholder quotas for NTPC and HDB Financial. However, in the meantime, we have received back-to-back comments from people asking, “Why don’t you make SE IPO?” and “Why don’t you make SME IPO?” There are numerous comments indicating that there is a need for knowledge in these areas as well. Thus, we are focusing on the main board of SME IPOs, which will be thoroughly covered.

Upcoming IPOs

Let’s look at the current scenario where many SE IPOs are rolling out. The dates 23, 25, and 27 are particularly important, as several IPOs are already open. If we consider the upcoming IPOs, it’s essential to analyze Nexus3 valuations, PAT margins, and the purpose for which the company is raising money. Specifically, let’s delve into what happens at 90% of the SME IPOs. Often, a completely fresh issue emerges, prompting questions about potential listing gains.

 

 

Nexus3, incorporated in October 2021, is a three-year-old company specializing in petrochemical products, specifically bitumen. But what are these bitumens? They are essential for making roads.

Clientele and Products

The company produces and distributes high-quality bituminous and special bituminous allied products to infrastructure and construction companies. If someone is constructing a complex, they will often procure materials from companies like Nexus3. Government agencies also source their materials for highway construction.

The firm has upgraded its processing units, enhancing production capacity and product quality. Nexus3 operates three manufacturing units located in Kutch (Gujarat), Pali (Rajasthan), and Bhopal (Madhya Pradesh), showcasing a solid geographical advantage.

Challenges in B2B Business

However, there are concerns to consider. The primary challenge in a B2B business is margin compression. When selling to the government, the prices are strictly controlled. For example, if a corporate client requests rates for internal work, they may not agree to high margins.

Important Dates for IPO

Let’s highlight some important dates regarding the upcoming IPO: the IPO will be held from the 26th to the 30th. Additionally, four more IPOs are slated to open in the same timeframe. Allotments will be announced on the 1st, followed by refunds or shares on the 3rd, and finally, listings on the 4th.

Financial Overview

Now, what valuation can we expect? The face value is ₹10, and the price band has been set at ₹105. While it’s mentioned that it will be priced at ₹103, moving forward, it seems there will likely be a single price band since IPOs are fully subscribed at 99.9%.

Last year, one IPO failed to be fully subscribed, raising concerns. The current lot size stands at 1,200 shares. The company is targeting a fresh issue worth ₹2,920 crores, with intentions to reinvest all funds back into the business.

Analyzing Financials

Turning our attention to financials, assets have seen significant growth. Initially, assets stood at ₹9 crores, increasing to ₹50-60 crores, then up to ₹16 crores, and ultimately reaching around ₹38 crores—more than a twofold increase. The key question arises: is this growth due to debt or retained earnings?

In terms of sales, the company has performed impressively. They reported a sales figure of ₹48 crores in their first year, which tripled to ₹142 crores in subsequent years, eventually reaching ₹238 crores. Notably, profit after tax has also increased from ₹54 lakhs to ₹35 crores over three years, albeit with a PAT margin of only 1%.

Evaluating Growth Potential

While the company has shown profit growth, it must tackle its rising debt levels, which have increased from ₹3 crores to ₹21 crores over three years. To boost profitability, they should focus on reducing debt and improving margins, potentially achieving a higher return on equity and return on capital employed.

Conclusion: Weighing Pros and Cons

In summary, Nexus3 is a relatively young company with visible growth. The pros include a strong order book with government contracts and increasing profits. However, the cons include rising debt levels and compressed margins.

If anyone is considering applying for the IPO, the overall outlook appears positive. Over-subscription rates may range from 20 to 50 times, and anticipated listing gains could be around 30 to 50 times. Therefore, I personally plan to apply for this IPO.

These insights on Nexus3 and its position in the market highlight the potential and risks associated with investing in upcoming IPOs.