Frog Cellsat NSE SME IPO review (May apply)

Frog Cellsat NSE SME IPO review (May apply)

•    FCL is engaged in telecom equipment manufacturing and related services.
•    Its business gained momentum and marked growth from FY20 onwards.
•    Based on its FY22 earnings, the issue appears fully priced. 
•    Cash surplus/risk seeker investors may consider an investment with a long-term perspective. 

Frog Cell was earlier listed with NSE on its Emerge-ITP platform, but due to falling business, it opted for a delisting. It remained listed from 2014 to 2018. Now, with the product mix and new devices portfolio, it has revamped its activities and is now coming out with an IPO for the NSE Emerge listing. With a blue-chip clients list, it is now poised for a fast-forward mode and management hopes to maintain its performance. 

Frog Cellsat Ltd. (FCL) is engaged in the manufacturing of telecom equipment used by telecom operators, especially in Telecom Towers. It manufactures 2G/3G/4G Multi-Band Digital RF Repeaters, Multi-band Frequency Shift Repeater, Multi-band Optical DAS systems, relative software, and accessories. We also offer In-Building Coverage Planning and Design services along with Radio Access Network (RAN) and Backhaul Network installation services. The company has two production units one is located in Noida and the second one is located in Dehradun.

FCL’s end-to-end RF enhancement solutions are well positioned in the industry for being price competitive, field-proven, future-ready, and highly reliable. Its design, development, manufacturing, and quality control processes are ISO 9001:2015 certified. FCL’s success is an outcome of a strategic focus on innovative R&D, to produce a unique range of RF products conforming to the applicable standards from ETSI, 3GPP, TEC, and other standardization bodies.

The company is one of the most experienced and focused Telecommunication equipment suppliers. Since its inception, it has been expanding and diversifying its product portfolio to offer the widest range of indoor and outdoor coverage solutions in the industry today. It directly sells products in the market and is not dependent upon any dealers/distributors for the sale of products.

The company is providing its products and services across Asia, Europe, Africa, and the Middle East. Its main products are 2G/3G/4G Multi-Band Digital RF Repeaters, Multi-band Frequency Shift Repeater, Multi-band Optical DAS system, relative software, and accessories. Also, the company’s Production line is equipped with anti-static equipment, all products are subject to rigorous, and reliable tests. As of August 31, 2022, it had 150 employees on its payroll. The company’s customer list included Bharti Airtel, Voda-Idea, Jio, Nokia, Ericson, Adani, BSNL, etc.

To part finance its need for expansion project (Rs. 30.25 cr.), and general corporate purposes, FCL is coming out with a maiden IPO of 4075200 equity shares of Rs. 10 each via book building route with a price band of Rs. 97 to Rs. 102 per share to mobilize Rs. 62.52 cr. (at the upper cap). The issue opens for subscription on September 29, 2022, and will close on October 04, 2022. The minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.51% of the post-issue paid-up capital of the company.

Out of the net issue post market maker portion, it has allocated 50% for QIBs, 15% for HNIs, and 35% for Retail investors. 

The issue is solely lead managed by Sarthi Capital Advisors Pvt. Ltd and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. SS Corporate Securities Ltd. is the market maker for this IPO.

The company has issued initial equity shares at par. It has also issued bonus shares in the ratio of 4 for 1 in October 2013 and 225 for 1 in August 2022. The average cost of acquisition of shares by the promoters is Rs. (0.12) and Rs. 0.04 per share.

Post-IPO, FCL’s current paid-up equity capital of Rs. 11.30 cr. will stand enhanced to Rs. 15.38 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 156.83 cr. (at the upper cap).

On the financial performance front, for the last three fiscals, FCL has (on a consolidated basis) posted a turnover/net profit of Rs. 88.51 cr. / Rs. 1.39 cr. (FY20), Rs. 129.40 cr. / Rs. 14.26 cr. (FY21), and Rs. 135.29 cr. / Rs. 14.34 cr. (FY22). The sudden boost in its static bottom lines for FY21 and FY22 raises eyebrows. The sustainability of such margins going forward is a major concern.

For the last three fiscals, FCL has reported an average EPS of Rs. 2430.65 and an average RoNW of 18.88 %. The issue is priced at a P/BV of 0.007 based on its NAV of Rs. 13792.36 as of March 31, 2022 (on pre-bonus, pre-, and at a P/BV of 1.29 based on its post-IPO NAV of Rs. 79.20 per share. (at the upper price band). (Data of EPS and NAV is based on pre-bonus equity capital. It is missing restated data on this aspect on the basis of the post bonus issue. This appears to be an eyewash). 

If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.93. Thus the issue appears fully priced based on its recent super earnings.

The company has paid a dividend of Rs. 1000 (10000%) for FY21-22. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects.

As per offer documents, FCL has shown ITI Ltd. and Astra Microwave as their listed peers. They are currently trading at a P/E of 90.78, and 64.01 (as of September 26, 2022). However, they are not truly comparable on an apple-to-apple basis.

This is the 46th mandate from Sarthi Capital in the last 11 fiscals (including the ongoing one). Out of the last 9 listings, 2 opened at discount, 2 at par, and the rest with premiums ranging from 0.07% to 333.05% on the day of listing.


Conclusion / Investment Strategy

The company was listed on NSE Emerge ITP from 2014 to 2018 and was delisted due to falling business. As claimed by the management, it has now revamped its products and gained momentum with blue-chip customers, and is on a fast-forward mode. Risk seeker/cash surplus investors may consider an investment with a long-term perspective.

Review By Dilip Davda on Sep 26, 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 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.