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OBSC Perfection Limited IPO Case Study

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OBSC Perfection Limited IPO Case Study

Introduction

OBSC Perfection Limited, a precision metal components manufacturer, recently launched its initial public offering (IPO) to raise ₹66.02 crore through a fresh issue of shares. The IPO opened for subscription on October 22, 2024, and closed on October 24, 2024. The shares are set to list on the NSE SME platform on October 29, 2024, providing an opportunity for investors to participate in the growth story of a promising company.

This case study will dive into the company’s background, its IPO details, financial performance, competitive strengths, and the potential risks and benefits of investing in OBSC Perfection Limited. We will also present a table summarizing key financial data and provide a disclaimer at the end.

Company Overview

OBSC Perfection Limited, established in 2017, is a leading manufacturer of precision metal components catering to industries such as automotive, defense, marine, and telecom infrastructure. The company’s product portfolio includes shafts, pinions, drive shafts, gear shifters, connectors, flanges, and more. OBSC Perfection primarily caters to Original Equipment Manufacturers (OEMs), which supply parts to major automobile manufacturers in India.

The company operates from four manufacturing units, with three facilities located in Pune, Maharashtra, and one in Chennai, Tamil Nadu. These strategic locations provide OBSC Perfection with access to key automotive and industrial hubs, allowing for efficient supply chain management and logistics.

IPO Details

The OBSC Perfection IPO is a book-built issue that aims to raise ₹66.02 crore through the sale of 6,602,400 fresh equity shares. The price band for the issue was set at ₹95 to ₹100 per share, and the minimum lot size for retail investors was 1200 shares, requiring an investment of ₹120,000. The issue size is divided among various investor categories, as shown in the table below:

Investor CategoryShares OfferedPercentage of Total
Anchor Investors1,879,20028.46%
Market Maker333,6005.05%
Qualified Institutional Buyers (QIB)1,255,20019.01%
Non-Institutional Investors (NII)940,32014.24%
Retail Individual Investors (RII)2,194,08033.23%
Total6,602,400100%

Timeline of the OBSC Perfection IPO:

  • Issue Open Date: October 22, 2024
  • Issue Close Date: October 24, 2024
  • Basis of Allotment: October 25, 2024
  • Listing Date: October 29, 2024

Financial Performance

The financial data for OBSC Perfection Limited shows consistent growth in both revenue and profitability. Between March 31, 2023, and March 31, 2024, the company’s revenue increased by 20%, and its profit after tax (PAT) rose by an impressive 167%. The table below provides a summary of OBSC Perfection’s financials for the last few fiscal years:

Financial Metric31 Aug 202431 Mar 202431 Mar 202331 Mar 2022
Assets (₹ Lakhs)11,066.378,650.596,916.014,847.48
Revenue (₹ Lakhs)5,700.1511,611.419,691.035,672.42
Profit After Tax (₹ Lakhs)603.051,221.21457.39360.11
Net Worth (₹ Lakhs)3,610.153,007.101,785.891,328.47
Reserves (₹ Lakhs)1,825.151,222.10595.89138.47
Borrowings (₹ Lakhs)4,967.824,147.253,340.481,897.54

Key Financial Ratios (as of March 31, 2024):

  • Return on Equity (ROE): 40.61%
  • Return on Capital Employed (ROCE): 31.49%
  • Debt to Equity Ratio: 1.38
  • Profit After Tax (PAT) Margin: 10.62%

Competitive Strengths

  1. Strategic Location of Manufacturing Facilities
    OBSC Perfection operates in two of India’s key automotive hubs—Pune and Chennai. These locations provide proximity to both suppliers and customers, enhancing supply chain efficiency.
  2. Diverse Product Portfolio
    The company manufactures a wide range of precision metal components, catering to multiple industries. This diversification reduces its reliance on any single sector and provides opportunities for growth across various verticals.
  3. Consistent Financial Growth
    OBSC Perfection has demonstrated strong financial performance, with significant revenue and profitability growth in recent years. The company’s ability to manage costs and increase its product portfolio has resulted in improved margins, making it an attractive investment option.
  4. Experienced Management Team
    The company’s promoters and management team have extensive experience in the precision engineering and manufacturing sectors. Their expertise has been crucial in expanding the company’s operations and driving financial growth.

Risks and Challenges

  1. Industry Concentration
    While OBSC Perfection has diversified across industries, a large portion of its revenue comes from the automotive sector. Any slowdown in the automotive industry could adversely impact the company’s financial performance.
  2. Dependence on OEMs
    OBSC Perfection’s reliance on OEMs for its customer base poses a risk, as any changes in the purchasing patterns or financial stability of these companies could affect OBSC’s revenue stream.
  3. Capital-Intensive Nature of Operations
    Precision metal component manufacturing is a capital-intensive business that requires significant investment in machinery and technology. Any delays or cost overruns in capital expenditures could affect the company’s profitability.
  4. Market Volatility
    The listing on the NSE SME platform means that the stock could experience significant price volatility, particularly in the initial stages of trading. Investors must be prepared for the possibility of sharp price fluctuations.

IPO Subscription and Allotment

The OBSC Perfection IPO received a positive response from investors, with an overall subscription of 2.53 times. The retail portion was subscribed 2.50 times, the QIB portion 2.71 times, and the NII portion 2.37 times.

CategorySubscription (Times)
Qualified Institutional Buyers (QIB)2.71
Non-Institutional Investors (NII)2.37
Retail Individual Investors (RII)2.50
Total2.53

Use of Proceeds

The company plans to use the proceeds from the IPO for the following purposes:

  1. Funding capital expenditure for the expansion of its manufacturing facilities in Pune and Chennai.
  2. Funding working capital requirements.
  3. General corporate purposes.

Conclusion

OBSC Perfection Limited presents a compelling case for investment, backed by its solid financial track record, experienced management, and strategic location of manufacturing facilities. The company’s expansion plans, combined with its diverse product portfolio, position it well for future growth. However, potential investors should carefully consider the risks, including the company’s reliance on the automotive sector and OEMs, as well as the capital-intensive nature of its business.

Disclaimer

The information provided in this case study is for educational purposes only and does not constitute financial or investment advice. Potential investors should conduct their own research and consult with a financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments are subject to risk.

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