Virtuoso Opto BSE SME IPO review (May apply)

Virtuoso Opto BSE SME IPO review (May apply)


•    VOL is a manufacturer and assembler of consumer durables goods.
•    It marked steady growth in its top and bottom lines for the last 3 fiscals.
•    Groups listed entity Starlite has pus dismal performance on BSE.
•    Super earnings in FY23 Q1 raise eyebrows and look fishy. 
•    Based on super Q1 numbers the issue is lucratively priced, but based on FY22 earnings, it is aggressively priced.
•    Risk seeker/cash surplus investors may consider parking of funds.

This group’s listed entity Starlite Components Ltd. has put a dismal performance on BSE and currently quoting around a 50% discount to its par value. This company’s financial performance is non-convincing, particularly the Q1 of FY23 performance crossing FY22 full year’s earnings in the first three months itself. There appears to be some window dressing because of which this issue appears attractively priced. If we calculate P/E on the basis of FY22 earnings, then the issue is aggressively priced. Its comparison with Dixon and Amber as listed peers also raises eyebrows. 

Virtuoso Optoelectronics Ltd. (VOL) manufactures consumer durables goods and assembles a wide array of products and provides end-to-end product solutions. It serves under both “Original Equipment Manufacturers” (OEM) and “Original Design Manufacturers” (ODM) business models. Under the OEM model, it manufactures and supplies products basis designs developed by customers, who then further distribute them under their brand names. Under the ODM model, in addition to manufacturing, VOL conceptualize and design the products that are marketed by them under their brands. ODM capabilities are catering to lighting products and small appliance segments.

Its current product portfolio includes split air conditions, water heaters, LED lighting products, and other miscellaneous products related to the existing basket.

As of June 30, 2022, it had 98 permanent employees and also employed around 135 contract labours/interns at its manufacturing facilities.

Group company Starlite Components Ltd. – a thinly traded listed entity at BSE is currently under Corporate Insolvency Resolution Process. This counter is under GSM – Stage 0 and IRP – Stage 0. With low volume, it was last quoted at Rs. 4.71 (Rs. 10 FV) – as of August 30, 2022. 

To part finance its needs for working capital (Rs. 20.40 cr.) and general corporate purposes (Rs. 6.79 cr.), VOL is coming out with a maiden IPO of 5400000 equity shares of Rs. 10 each at a fixed price of Rs. 56 per share. The company mulls raising Rs. 30.24 cr. with this IPO. The issue opens for subscription on September 02, 2022, and will close on September 07, 2022. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.49% of the post-issue paid-up equity capital of the company. VOL is spending Rs. 3.05 cr. for this IPO process. Such heavy spending indicates a structured process for IPO funding in advance. 

The issue is solely lead-managed by Fedex Securities Pvt. Ltd. and Cameo Corporate Services Ltd. is the registrar to the issue. Gretex Share Broking Pvt. Ltd. is the market maker for this company.

Having issued initial equity shares at par, VOL issued/converted further equity in the price range of Rs. 12 to Rs. 325 per share between March 2018 and January 2022. It has also issued bonus shares in the ratio of 6 for 1 in October 2021. The average cost of the acquisition of shares by the promoters is Rs. 7.92 per share.

Post-IPO, VOL’s current paid-up equity capital of Rs. 14.98 cr. will stand enhanced to Rs. 20.38 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 114.14 cr.

On the financial performance front, for the last three fiscals, VOL has reported turnover/net profits of Rs. 68.39 cr. / Rs. 1.41 cr. (FY20), Rs. 115.51 cr. / Rs. 2.08 cr. (FY21) and Rs. 200.28 cr. / Rs. 3.94 cr. (FY22). For the first quarter of FY23, it earned a net profit of Rs. 4.12 cr. on a turnover of Rs. 74 cr. Thus it has posted steady growth in its top and bottom lines for the reported periods. Q1 net earnings crossing the entire FY22 raises eyebrows.

For the last three fiscals, it has posted an average EPS of Rs. 2.36 and an average RoNW of 16.56%. The issue is priced at a P/BV of 3.31 based on its NAV of Rs. 16.94 as of June 30, 2022, and at a P/BV of 2.05 based on its post-issue NAV of Rs. 27.29 per share.

If we annualize FY23 earnings and attribute it to a post-IPO fully diluted equity base, then the asking price is at a P/E of 6.92 making it a lucratively priced offer. But around 10% of spending for the IPO process raises eyebrows and concerns. Is there any window dressing in its financial data for Q1 of FY23? Its results for FY21 also did not reflect any impact of the pandemic. 

Based on its FY22 earnings, the issue is priced at a P/E of 29.02 on a post-issue fully diluted equity base.

As per offer documents, VOL has shown Dixon Techno and Amber Enterprises as their listed peers. They are currently trading at a P/E of 137.5 and 139.4 (as of August 30, 2022). This comparison with giant players raises eyebrows. However, they are not truly comparable on an apple-to-apple basis.

The company has not declared/paid any dividend since incorporation. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects.

This is the 11th mandate from Fedex Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 3 opened at par and the rest with a premium ranging from 0.08% to 5.00% on the day of listing. Thus it has a poor track record.

Conclusion / Investment Strategy

This group’s currently listed entity Starlite Components Ltd has posted dismal performance and is quoting at over 50% discount to its par value. VOL’s comparison with Dixon and Amber Enterprises also surprises one and all. Extra super performance for FY23 Q1 with bumper profits in non-convincing and looks fishy. Attribution of Q1 FY23 performance makes this issue lucratively priced, but based on FY22 earnings, it appears aggressively priced. Nearly 10% of the issue size expenses indicate arranged funding. Based on these evaluations, only well-informed cash surplus risk seekers may consider parking of funds, the rest can ignore it.

Review By Dilip Davda on Aug 30, 2022

Review Author

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the past, SME IPOs drew the attention of investors across the board. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at own risk. The above information is based on information available as on date coupled with market perceptions. The Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).

About Dilip Davda

Dilip Davda

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.