Pace E-Commerce BSE SME IPO review (Avoid)
• PEVL is an online platform for Kids’ fashionwear, sports goods, etc.
• Its financial performance so far is on a minuscule level.
• Selling stakeholders want to make fortune via OFS in this issue.
• Based on FY22 earnings, the issue is exorbitantly priced.
• There is no harm in skipping this costly IPO.
Off late we are witnessing some companies that are eligible for a mainboard IPO opting for the SME IPO route at the behest of Lead Managers. According to market sources, this is just to save the cost of the IPO process and also manage the screen post listing to meet their game plans. After QMS Medical and Swastik Pipe, we are seeing this third company following the footsteps of the other two. While they are entering the SME platform, they are asking for valuations of mainboard aspirants.
Pace E-Commerce Ventures Ltd. (PEVL) started in August 2015 as a business that would give the kids/young consumers and sports enthusiasts in India access to International Football Clubs Merchandise and International Sports Brands’ apparel and Sports Goods. It started with imports and distribution of branded international sports apparel and extended to various branded merchandise and accessories. Thereafter the company acquired manufacturing and distribution licenses of some of the popular and biggest brands in the Kids’ Entertainment Industry.
Thereafter, PEVL established its own e-commerce portal, www.cotandcandy.com offering a large range of products across different categories. It also started catering to a number of requests for on-demand printing and manufacturing of products for both B2C and B2B Customers. Later, the portal expanded product categories to kids’ sports, fashion, furniture, and home textiles. PEVL currently has exclusive manufacturing and distribution rights for world-renowned kids’ character entertainment brands and products in its portfolio including Licenses of Internationally reputed Kids brands. Besides these, it had also developed a good collection of Home Textiles and gifting products under its own private labels.
In this journey, the company gradually transformed from an importer, licensee, and distributor to online digital retail and provided an online platform to manufacturing companies for unique and personalized products. At present company operates across all cities in India through online channels and in most major cities through the offline distribution of products. The company has been registered as a Startup with the Department for Promotion of Industry and Internal Trade of the Ministry of Commerce & Industry, Government of India for working in the ‘IT Services’ Industry and ‘Product Development sector. on September 09, 2021, and is valid up to August 04, 2025. The Company is going to provide an online platform for unique and personalized products. As of September 1, 2022, it had a total strength of 16 permanent employees in various departments.
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding needs for the acquisition of plant and machinery (Rs. 9.74 cr.), working capital (Rs. 20.86 cr.), and general corporate purposes (Rs. 10.00 cr.), PEVL is coming out with a maiden IPO of 6459600 equity shares of Rs. 10 each at a fixed price of Rs. 103 per share to mobilize Rs. 66.53 cr. The issue constitutes 4000000 fresh equity shares and an Offer for Sale (OFS) of 2459600 shares. 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 BSE SME. The issue constitutes 28.67% of the post-IPO paid-up equity capital of the company. PEVL is spending Rs. 0.60 cr. for this IPO process.
The issue is solely lead managed by Interactive Financial Services Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Beeline Broking Ltd. is the market maker for the company.
The company has issued initial equity shares at par and has also converted shares at a fixed price of Rs. 15 per share in March 2021 and at a fixed price of Rs. 103 in July 2022. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 15.48, Rs. 20.00, Rs. 25.00, and Rs. 44.12 per share. Thus selling stakeholders want to make the fortune with the lacklustre performance of the company so far.
Post this IPO, PEVL’s paid-up equity capital of Rs. 18.53 cr. will stand enhanced to Rs. 22.53 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 232.10 cr.
On the financial performance front, for the last three fiscals, PEVL has reported a turnover/net profit of Rs. 1.50 cr. / Rs. 0.003 cr. (FY20), Rs. 1.72 cr. / Rs. 0.07 cr. (FY21), and Rs. 10.54 cr. / Rs. 0.54 cr. (FY22). Thus it has marked growth in its top and bottom lines. But its scale of top and bottom lines is minuscule against the IPO size and the asking price.
For the last three fiscals, PEVL has posted an average EPS of Rs. 0.82 and an average RoNW of 1.90%. The issue is priced at a P/BV of 7.12 based on its NAV of Rs. 14.46 as of March 31, 2022, and at a P/BV of 3.32 based on its post-IPO NAV of Rs. 31.02 per share.
If we attribute FY22 super earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 429.16. Thus the issue is exorbitantly priced. Its earnings so far have no match for the asking price.
COMPARISON WITH LISTED PEERS:
As per the offer documents, PEVL has no listed peers to compare with.
The company has not declared/paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy post IPO, based on its financial performance and future prospects.
MERCHANT BANKER’S TRACK RECORD:
This is the 5th mandate from Interactive Financial in the last two fiscals (including the ongoing one). Out of the last 4 listings, 2 opened at discount and the rest with premiums ranging from 0.08% to 0.22% on the day of listing. Thus this merchant banker has a poor track record.
Conclusion / Investment Strategy
PEVL is an online platform for kids’ fashionwear and sports goods, etc. Its financial performance so far is not in line with the asking price. Though eligible for a mainboard IPO, its plans for the SME platform raise eyebrows. Based on FY22 earnings, the issue is exorbitantly priced. Simply avoid this IPO to save your hard-earned money.
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.