Kandarp Digi NSE SME IPO review (Avoid)
• KDSBL is engaged in BPO services and related solution business.
• It marked almost static top line with declining profits for the last 4 fiscals.
• Based on its FY22 earnings, the issue is aggressively priced.
• The Parent company RDSL marks thin trades at discount against its offer price.
• Stay away from this pricy bet with dismal financial track records.
KDSBL is a subsidiary of Reliable Data Services Ltd. (RDSL) which came with its IPO at Rs. 57 per share in October 2017 and had the last quote at Rs. 52 on NSE SME Emerge. RDSL gave the mandate to Swastika Investmart, but for its subsidiary, it has given a mandate to Beeline Capital.
Kandarp Digi Smart BPO Ltd. (KDSBL) is engaged in BPO services specializing in the area of support services solutions. The Company provides a wide range of support services such as Call Centre, Contact Point Verifications, Site Visits, Document check/Pickup, E-KYC, Skip Tracing, Employee Back Check, Staffing Solutions, Payroll Management, Payment Collections (soft), AMC Booking Services, etc. to its clients and specializes in providing End to End solutions to customers/clients.
It believes in providing efficient and accurate services which is the core value of the organization. KDSBL’s services are focussed on delivering outstanding results for clients.
The Company is an ISO 9001:2015 certified company for Quality Management Services in the field of Banking Verifications, Credit and Risk Control/ Pick-Up Activities, Call Centre and Audit. It is providing all these services for the last two decades.
KDSBL is a subsidiary of promoter company Reliable Data Services Limited which is listed on the NSE SME Emerge and is not having any trades currently. Kandarp Digi Smart BPO Limited is a Reliable Group Company driven by a highly innovative team of professionals. As on March 31, 2022, the Company has 41 employees on the payroll.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 6.00 cr.), general corporate purposes (Rs. 1.10 cr.), KDSBL is coming out with a maiden IPO of 2700000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 8.10 cr. The issue opens for subscription on September 16, 2022, and will close on September 20, 2022. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.09% of the post-issue paid-up capital of the company. KDSBL is spending Rs. 1.00 cr. for this IPO process, indicating the structured nature of the IPO.
The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company.
Having issued initial equity at par, the company issued further equity shares at a price of Rs. 40 in March 2017, and has also issued bonus shares in the ratio of 8 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 0.08, Rs. 0.16, and Rs. 3.49 per share.
Post-IPO, KDSBL’s current paid-up equity capital of Rs. 6.27 cr. will stand enhanced to Rs. 8.97 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 26.92 cr.
On the financial performance front, for the last four fiscals, KDSBL has posted turnover/net profits of Rs. 11.07 cr. / Rs. 1.48 cr. (FY19), Rs. 10.13 cr. / Rs. 1.12 cr. (FY20), Rs. 10.54 cr. / Rs. 0.11 cr. (FY21), and Rs. 12.88 cr. / Rs. 0.94 cr. (FY22). Thus while its top line remained almost static, its bottom line marked inconsistency with declining trends.
For the last four fiscals, it has posed an average EPS of Rs. 1.24 and an average RoNW of 11.04%. The issue is priced at a P/BV of 2.61 based on its NAV of Rs. 11.50 (in the offer documents its perhaps a typo error of showing Rs. 1.50) as of March 31, 2022, and at a P/BV of 1.80 based on its post-IPO NAV of Rs. 16.67 per share.
If we attribute FY22 earnings on post IPO fully diluted equity capital, then the asking price is at a P/E of 28.57.
The company has not declared/paid any dividend for the last five fiscals. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per offer documents, KDSBL has shown Firstsource Solutions and eClerx Services as its listed peers. They are currently trading at a P/E of 22.8 and 22.68 (as of September 13, 2022). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
This is the 3rd mandate from Beeline Capital in this fiscal itself. The only listing that took place so far (Jay Jalaram) opened with a 38.89% premium on the listing date.
Conclusion / Investment Strategy
The financial data of the company is not that impressive and is far away from matching the asking price. Based on FY22 earnings the issue appears aggressively priced. It operates in a highly competitive segment. The parent company which got listed on NSE SME is witnessing thin trades at a discount to its offer price. There is no harm in skipping this pricy bet.
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 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.