GNG Electronics
IPO Size: Rs. 460 cr
- Rs. 400 cr fresh issue to repay Rs. 320 cr debt (of Rs. 375 cr net debt)
- Rs. 60 cr offer for sale (OFS) by the promoters (95% to drop to 79%)
Price band: Rs. 225-237 per share
M cap: Rs. 2,702 cr, implying 17% dilution
IPO Date: Wed 23rd Jul to Fri 25th Jul 2025, Listing Wed 30th Jul 2025
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
Laptop Refurbishment Company
GNG Electronics is a 19 year old, Mumbai-based refurbisher of electronic devices like laptops, desktops etc., having 5 facilities in India, UAE and USA. International geography accounts for 75% of Rs. 1,411 cr topline, with 95% sales being on B2B basis and only 5% B2C, from electronicsbazaar.com.
Commoditized Business
In FY25, average realization per device significantly dropped by 22% to about Rs. 23,900, from Rs. 30,800 in FY24. Thus, despite refurbishing 60% more devices in FY25 at 5.9 lakh units, revenue growth was restricted to 24% YoY. This indicates a lack of pricing power, with business being low value-high volume.
Changing Geographic Mix
International markets contributed to company’s growth, with revenue from US doubling to Rs. 252 cr in FY25, from Rs. 119 cr in FY24. Revenue from Europe and Asia surged to Rs. 99 cr in FY25 (of , Rs. 83 cr in H2FY25 alone), from just Rs. 1.3 cr in FY24.
Such a sudden spurt immediately before IPO is quite surprising!
Also, during the same period, revenue from India dipped 28% YoY, to Rs. 345 cr in FY25, from Rs. 478 cr in FY24, despite India being company’s largest of the five facilities and procurement from India rising 16% YoY to Rs. 692 cr in FY25, from Rs. 594 cr in FY24. Material swings in revenue makes one uncomfortable with company’s business model.
Working Capital Heavy
Business does not require heavy capex for machinery and is asset-light. But working capital requirement is high, as ~4 months of inventory is held in stock, with negligible credit from suppliers.
In FY25, working capital condition deteriorated, with inventory turnover ratio down to 2.9x, from 4.9x in FY23 and 3.6x in FY24. Drop in inventory-turn is seen concerning.
Debt Repayment to Ease Interest Outgo
FY25 PAT stood at Rs. 69 cr, translating into 5% net margin and an EPS of Rs. 7, on equity of Rs. 19.43 cr (FV Rs. 2 each). As ~50% business is generated in UAE, company enjoys tax sops, leading to a low effective tax rate, of 11-12%.
Post IPO, gross debt of Rs. 435 cr will shrink to Rs. 115 cr, with net debt to equity ratio cooling down to 0.1:1, from 1.7:1 at present. Rs. 38 cr was paid as interest in FY25, 75% of which will be saved going forward, increasing the bottomline.
Aggressively Priced
Interest savings lead to an estimated FY26E EPS of around Rs.9.5, implying a PE multiple of 25x. This is quite steep for B2B operations and 6-7% net margin going forward. Although not an exact peer, electronics retailer Rashi Peripherals, with Rs. 14,000 cr topline and Rs. 210 cr PAT in FY25 is ruling at a m cap of Rs. 2,100 cr, implying a PE multiple of only 10x, on historic basis. GNG Electronics, with 1/10th the topline, will have a m cap of Rs. 2,700 cr, at the IPO price. The small cap stock’s changing revenue mix and deteriorating working capital condition makes risk-reward unfavourable. GNG cannot be compared to electronics manufacturing services like Dixon, Kaynes etc. as business model and fundamentals differ.
21st Jul 2025 at 06:32 am