Knowledge Marine & Engineering Works coming with an IPO to raise upto Rs 10 crore

Knowledge Marine & Engineering Works

• Knowledge Marine & Engineering Works has come out with an initial public offering (IPO) of 27,36,000 Equity Shares of face value of Rs 10 each for cash at a fixed price of Rs 37 per equity share.
  
• The issue will open on March 9, 2021 and will close on March 12, 2021.
  
• The shares will be listed on SME Platform of BSE.
  
• The share is priced 3.70 times higher to its face value of Rs 10.
  
• Book running lead manager to the issue is Hem Securities.
  
• Compliance Officer for the issue is Sonali Chetan Gor.

Profile of the company

The company is engaged in the business of owning and operating of Marine Crafts for dredging along with repairs and maintenance/refits of Marine Crafts and Marine Infrastructure. Its group started its business in the year 2013 under the name Kamal Marine & Engineering Works, which undertakes the business of repair/ refits of marine crafts. With a two years of marine engineering experience and sustainable financial growth, the group expanded to owning and operating small crafts under the flagship of Knowledge Marine & Engineering Works with its head office at Mumbai. Over the years it has become an established player in the small-craft business segment in India and has evolved from a small ship-repair unit to a ship-owning Company.

The company has two major segments which includes following:

• Owning and operating of Marine crafts for dredging services.
• Ancillary services - conducting marine hydrographic & magnetometer survey, providing technical manpower solutions for maintenance and operation of vessels and repairs and Maintenance/ Refits of Marine Crafts and Marine Infrastructure.

Proceed is being used for:

• Meeting working capital requirements.
• General corporate purpose.
•  Meeting issue expenses.

Industry overview

According to the Ministry of Shipping, around 95 percent of India's trading by volume and 70 percent by value is done through maritime transport. India has 12 major and 205 notified minor and intermediate ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The Indian ports and shipping industry play a vital role in sustaining growth in the country’s trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 percent under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

During FY19, cargo traffic at major ports in the country was reported at 699.05 million tonnes (MT). Cargo traffic handled stood at 463.07 million tonnes in 2019 (till November 2019). Cargo traffic at non-major ports was estimated at 529.6 million tonnes FY18 and grew at 10 per cent CAGR between FY 07-18 and reached 281.0 million tonnes in FY19P (up to Sep 18). The major ports had a capacity of 1,514.09 million tonnes per annum by FY19P. The Maritime Agenda 2010-20 has a 2020 target of 3,130 MT of port capacity. The government has taken several measures to improve operational efficiency through mechanisation, deepening the draft and speedy evacuations.

Pros and strengths

Diverse, young and technologically advanced fleet: The company’s fleet comprises a diverse range of modern and technologically advanced marine crafts. The fleet it operates is young and technically advanced. Except for the Trailing Suction Hopper Dredger all its marine crafts are new and of make younger than 2016. Its new generation marine crafts have better functional capabilities and operate more efficiently than equivalent older marine crafts. Its marine crafts are designed to operate safely in complex and challenging environments with the use of sophisticated technologies. These technologies allow its marine crafts to maintain position with minimal variance. Further, Newer marine crafts generally experience less downtime and require significantly less maintenance and scheduled drydocking costs compared to older marine crafts. Due to complexities involved in offshore operations an increasing number of offshore contractors will prefer to hire newer and more modern marine crafts.

Ability to identify, acquire and deploy vessels: The company began its operations in 2015 and over the period of 5 years it has emerged as a ship owing company from a small ship repair company. As on the date of this Prospectus the group collectively holds 4 vessels i.e. Pilot boat, Survey cum pilot boat, Grab hopper dredger and Trailing hopper suction dredger. It considers acquiring a marine craft when there is a demand for marine crafts in any particular segment in the industry. An acquisition feasibility analysis is performed by its in-house technical and finance departments. Its acquisition strategy is designed to ensure that there is minimal ‘idle time’.

Strong execution capabilities with industry experience: Within a short span of 5 years, the company has executed 15 projects having an aggregate value of more than Rs 15 crore. The company’s focus is to leverage its strong project management and execution capabilities to complete projects in a timely manner while maintaining high quality of services.

Risks and concerns

Dependent on offshore charter hire services business: The company’s total income for the period ending September 30, 2020 was Rs 1631.63 lakh and for the year ending March 31, 2020 the same was Rs 2390.89 lakh, primarily due to an increase in charter hire income. Its charter hire income increased during this period primarily as a result of the expansion of its fleet and securing new tenders. It anticipates that going forward, it will be substantially dependent on the income it generates from its offshore marine services. These risks could be due to, among other factors, inclement or adverse weather conditions, environmental hazards, industrial accidents, occupational and health hazards, mechanical and technical failures, explosions, pollution, industrial action and shortages of manpower and equipment. In the event that there is any damage to any of its marine crafts as a result of any of the eventualities indicated above, its business, financial condition and results of operations may be adversely affected. 

Operate in capital-intensive industry: The company operates in a capital-intensive industry, which requires substantial levels of funding. Any acquisition of a new vessel or construction programme to expand its fleet, will requires significant capital expenditure. It may require to increase its borrowings under credit facilities from its financiers for the same. Its long-term capital requirements may increase significantly in the future, which may require it to raise more capital or increase its capital contribution in its Subsidiaries to fund its intended growth. It cannot assure you that it will have sufficient capital resources to build or acquire the vessels and equipment required to expand or to maintain its current fleet size and configuration.

Significant part of business transactions with government authorities: The company’s business is primarily dependent on contracts in the marine & shipping sector which are usually undertaken by government undertakings. It may be subject to additional regulatory scrutiny associated with commercial transactions with government owned or controlled entities and agencies. Further, in certain instances, it may face delays associated with collection of receivables from government owned or controlled entities due to various issues at their end.

Outlook

Incorporated in 2015, Knowledge Marine & Engineering works is primarily engaged in Marine Crafts and Marine Infrastructure Engineering and construction work. It is an established player in the small-crafts business segment in India. The business operates in two segments; one is owning and operating Marine Craft and another comprised of ancillary services like repairing and maintenance, offering technical manpower solutions, conducting marine hydrographic and magnetometer surveys, etc. The company’s experience in marine services, technical capabilities, timely performance, reputation for quality and timely delivery of services, financial strength as well as the price competitiveness has enabled it to successfully bid and win projects. Besides, its total revenue and net profit as restated in the financial statements have shown healthy CAGR in last 3 financial years. On the concern side, the company’s success heavily depends upon the continued services of its Key Managerial Personnel, along with support of its Promoters. It also depends significantly on its Key Managerial Personnel for executing its day-to-day activities. Besides, its business is substantially dependent on its ability to accurately carry out the pre-bidding studies for potential projects. Any deviation during the execution of the project as compared to its pre-bid estimates could have a material adverse effect on its cash flows, results of operations and financial condition.

The company is coming out with an IPO of 27,36,000 equity shares of Rs 10 each at a fixed price of Rs 37 per equity share to mobilize Rs 10.12 crore. On the performance front, the company’s total Income for the financial year 2019-20 stood at Rs 2417.97 lakh whereas in Financial Year 2018-19 the same stood at Rs 1059.52 lakh, representing an increase of 128.21% from the previous year. Its net Profit after tax for the Financial Year 2019-20 increased to Rs 424.78 lakh as compared to Rs 270.92 lakh in financial year 2018-19. The company’s primary focus is to strengthen its prospects in the marine related services including, but not limited to dredging, tugging, repairs, etc. Over the next few years, it will focus on the expanding its asset base, primarily vessels, to increase its number of orders either independently or through JV’s. The company currently operate on Kolkata port, Paradip Port and Vishakhapatnam port and it plans to expand its reach to other port of the country and tap the opportunity.