Canarys Automations NSE SME IPO review (Apply)

Canarys Automations NSE SME IPO review (Apply)

• CAL is engaged in IT automation and water resource management solutions.
• It has posted steady growth in its financial performances for the reported periods.
• Based on FY23 performance, the issue appears fully priced.
• It has orders on hand worth Rs. 57.93 cr. as of August 31, 2023.
• Investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:

Canarys Automations Ltd. (CAL) is a leading IT solutions provider with over 30 years of existence in the industry. Its expertise lies in enabling digital transformation for businesses through the company’s comprehensive range of software solutions in the space of Digitalization, Modernization, Automation, and Intelligence.

Its business operates across two verticals – 1) Technology solutions: Our technology solution offerings include multiple arrays of consulting solutions in Digitalization, Modernization, Cloudification, Automation, Transformation, and Intelligence. Technology expertise includes DevOps Consulting (Azure, GitHub, Atlassian, GitLab, etc.), Cloud Consulting (Azure, AWS, GCP), Digital Enterprise Solutions using SAP, MS Dynamics 365, RPA, Digital Applications, and Mobility Solutions, and 2) Water Resource Management Solution, under which it offers automation solutions to modernize irrigation water conservation and improve water use efficiency, Turnkey flood risk assessment, and mitigation, cloud-based water utilization process automation for water sharing in rivers and canals and SCADA gate control systems.

The company understands the evolving demands of the digital landscape and is dedicated to helping organizations harness the power of technology to drive growth and success. Its solutions span across various industry sectors, including BFSI, Retail, Healthcare, Pharmaceutical, Manufacturing, Insurance, and more.

With a strong focus on digital transformation, CAL empowers businesses to optimize their operations, enhance customer experiences, and stay ahead of the competition. Its commitment to excellence has been recognized and rewarded by various customers, alliance partners, and OEMs. As of August 31, 2023, it had an order book of Rs. 57.93 cr. As of September 20, 2023, it had 326 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:

The company is coming out with a maiden book-building route IPO of 15172000 equity shares. It has announced a price band of Rs. 29 – Rs. 31 per share of Rs. 2 each and mulls mobilizing Rs. 47.03 cr. at the upper end. The issue opens for subscription on September 27, 2023, and will close on October 03, 2023. 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 27% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 11.00 cr. for solution development for digital transformation and water resources management solutions, Rs. 8.94 cr. for upgrading existing facility and creation of a new delivery center including related infrastructure, Rs. 15.00 cr. for working capital and the rest for general corporate purposes.

After reserving 760000 shares for the market maker, the company has allocated not more than 7200000 shares for QIBs, not less than 2164000 shares for HNIs, and not less than 5048000 shares for Retail investors.

Indorient Financial Services Ltd. is the sole Lead Manager, and Link Intime India Pvt. Ltd. is the registrar of the issue. Alacrity Securities Ltd. is the market maker for the company.

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 3.20 to Rs. 25 per share between January 2004 and July 2023. It has also issued bonus shares in the ratio of 2 for 1 in June 2000, 3 for 5 in November 2005, 1 for 1 in March 2022, and 1 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 0.47, Rs. 0.48, Rs. 0.73, Rs. 1.30, and Rs/1.50 per share.

Post-IPO, CAL’s current paid-up equity capital of Rs. 8.20 cr. will stand enhanced to Rs. 11.24 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 174.17 cr.

FINANCIAL PERFORMANCE:

On the financial performance front, for the last three fiscals, CAL has (on a consolidated basis) posted a total income/net profit of Rs. 25.78 cr. / Rs. 2.10 cr. (FY21), Rs. 52.00 cr. / Rs. 4.56 cr. (FY22), and Rs. 75.47 cr. / Rs. 8.53 cr. (FY23).

For the last three fiscals, the company has reported an average EPS of Rs. 2.85 and an average RoNW of 26.44. The issue is priced at a P/BV of 2.49 based on its NAV of Rs. 12.44 as of March 31, 2023. The offer document and the IPO Ad are silent on their post-IPO NAV data.

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 20.39. Thus prima facie, the issue appears fully priced.

The company posted PAT margins of 8.21 % (FY21), 8.85% (FY22), and 11.44% (FY23). This indicates the bright prospects ahead for this company.

DIVIDEND POLICY:

The company has declared a dividend of 10% (on Rs. 10 FV) for FY21 and 6% (on Rs. 2 FV) for FY22. The company adopted a dividend policy in August 2023 based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:

As per the offer documents, the company has shown All T Technologies, and Happiest Minds as their listed peers. They are trading at a P/E of 30.56 and 62.74 (as of September 25, 2023). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:

This is the 5th mandate from Indorient Financial in the last three fiscals (including the ongoing one). Out of the last 2 listings, 1 opened at a discount and 1 at a premium of 5.86% of the date of listing.

Conclusion / Investment Strategy

CAL is a niche player in IT automation solutions and water resource management. It has posted steady growth for the reported periods of the offer document. FY23 performance indicates future prospects. It has an order book worth Rs. 57.93 cr. as of August 31, 2023. Based on its financial performances so far, though the issue appears fully priced, it is worth considering for medium to long-term rewards.

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