Delta Autocorp IPO: Why brokerages are gung-ho over this SME issue?

A number of leading brokerage firms are positive on the SME initial public offering (IPO) of Delta Autocorp, which opened for bidding on Tuesday, January 7. The automobile player is offering its shares in the range of Rs 123-130 apiece. Investors can apply for a minimum of 1,000 equity shares and its multiples thereafter, until Thursday, December 09.

Incorporated in 2016, Delta Autocorp is engaged in the business of manufacturing and selling 2-wheelers & 3-wheelers EVs. It operates under the brand name 'Deltic', which initially concentrated on developing electric 3-wheelers prototypes. They marked a significant milestone in 2017 with the launch of their first e-Rickshaw, boasting an impressive mileage of over 150 Km.

Brokerage firms are swearing by the rising demand of electric mobility, particularly in the two-wheeler and three-wheeler segments, along with its reasonable valuations of the issue, leaving something on the table for the investors. Also, a strong and experienced management with pan-India penetration is also seen as a major positive for the SME player.

Delta Autocorp offers a wide range of e-scooters, e-rickshaws, and e-garbage disposal vans and e-loaders catering to diverse needs of the Indian consumer. The electrification trend is transforming all automotive vehicle segments, including shared mobility sectors like 3Ws, commercial vehicles, and taxis, which are adopting electric technologies for improved operating efficiency, said Choice Broking.

India stands as one of the fastest-growing markets for electric two-wheelers (E2Ws). A recent study suggests that electric two-wheeler sales in India could exceed 80 per cent by 2030. The valuation seems to be at a discount compared to its peers. With this expanding industry shift, we foresee a positive growth outlook for the company, it said with a 'subscribe' rating on the issue.

The Rs 54.60 crore-IPO of Delta Autocorp includes a fresh share sale of 38.88 lakh shares and an offer-for-sale (OFS) of up to 3.12 lakh shares worth Rs 4.06 crore.  The net proceeds from the issue shall be utilized towards funding of expenditure for setting up an electric 3-wheeler plant, investment in product development, funding of working capital needs and general corporate purposes.

Ahead of its IPO, Delta Autocorp raised about Rs 15.21 crore from anchor investors including Bharat Venture Opportunities Fund, HDFC Bank, Saint Capital, Veloce AIR, Vikasa India EIF I Fund, Shine Star Build Cap, Knightstone Capital LLP and others. Last heard, Delta Autocorp was commanding a grey market premium of Rs 110 apiece, suggesting a 85 per cent listing pop for investors.

Delta Autocorp leverages technological innovation and R&D to deliver advanced automotive solutions, aligning with customer demands and regulatory standards for a competitive edge. Its scalable business model, supported by IPO proceeds, enables geographic expansion and portfolio diversification to tap into growing market demand, said Arihant Capital Markets in its note.

"With efficient manufacturing, strategic distribution networks, and robust supply chain management, the company ensures cost-effective production and delivery. Backed by experienced leadership and strong industry positioning, it is well-equipped to drive sustainable growth, it said. We are recommending a 'subscribe' for this issue," it said.

In 2018, Delta's prototype development began,and in 2019, it launched affordable, durable scooters for tier-2 and tier-3 towns. It operates through a network of over 300 dealers across 25 states and Union Territories, focusing on B2B transactions. The goal is to become a global brand with cost-effective, practical products and excellent service.

Backed by experienced leadership and strong industry positioning, it is well-equipped to drive sustainable growth, said SMIFS Capital market. The issue is valued at a P/E ratio of 24.18 times based on a FY24 EPS of Rs 5.38. Based on October 2024 annualized PAT the issue is valued at a P/E ratio of 24.11 times, with a 'subscribe' rating for the issue.

For the seven months ended on October 31, 2024, the company reported a net profit of Rs 4.8 crore with a revenue of Rs 45.28 crore. The company reported a net profit of Rs 8.22 crore with a revenue of Rs 81.17 crore for the financial year 2023-24. The company commands a total market capitalization close to Rs 200 crore.

The company has reserved 50 per cent of the net offer for qualified institutional bidders (QIBs), while non-institutional investors (NIIs) have 15 per cent of the net offer allocated towards them. Retail investors will have 35 per cent of reservation in the net offer for them.

GYR Capital Advisors is the book running lead manager of the Delta Autocorp IPO, while Link Intime India is the registrar for the issue. The market maker for Delta Autocorp IPO is Giriraj Stock Broking. Shares of the company shall be listed on the NSE emerge platform on January 14, Tuesday.