Cyber Media Reseach NSE SME IPO review (Avoid)

•    CMRSL is engaged in ad tech and data analytics business.
  •    Post the pandemic, this segment has marked growth and is poised for better prospects.
  •    Based on FY22 results, the issue is priced aggressively. 
  •    Its listed parent company is languishing with poor track records.
  •    There is no harm in skipping this pricy issue. 

PREFACE:
This is a group company of already listed parent company Cyber Media India Ltd., which has been languishing with average performance and has skipped dividends from 2008 onwards. The group is engaged in a similar business in many subsidiaries and there are chances of a clash of interests. This company posted bumper working for FY22 and based on it, the issue is priced aggressively. 

ABOUT COMPANY:
Cyber Media Research & Services Ltd. (CMRSL) is engaged in ad tech and data analytics business in an industry that is expanding rapidly. The Company has four revenue streams i.e., Digital Marketing, Programmatic Media Buying, Publisher Monetization, and Data Analytics. These together form the pillars of the digital marketing landscape, i.e. it provides proprietary solutions that enable advertisers and publishers to match the right ad with the right user. This drives higher conversions and sales for advertisers and enables publishers to earn more.

The Company has been growing its offerings and customer base and is well positioned to build multiple revenue streams in the digital landscape. Automation in this industry is driving significant changes, and data acts as a critical enabler. Its algorithms leverage large sets of data and process it via AI engines to provide the right results, therefore simplifying digital marketing. CMGalaxy, Auxo Ads, and CyberAds are CMRSL’s propriety products for different stakeholders in the ecosystem. As of March 31, 2022, the Company has 48 employees on the payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 4.00 cr.), funding for new projects, and general corporate purposes, CMRSL is coming out with a maiden IPO of 780000 equity shares of Rs. 10 each via book building route with a price band of Rs. 171.00 to Rs. 180.00 per share to mobilize Rs. 14.04 cr. (at the upper cap). The issue consists of 408000 fresh equity shares and 372000 shares by Offer for Sale (OFS). The issue opens for subscription on September 27, 2022, and will close on September 29, 2022. The minimum application is to be made for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.64% of the post-issue paid-up capital of the company.

The issue is solely lead managed by Swastika Investmart Ltd and Link Intime India Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this IPO.

The company has issued/converted entire equity shares at par so far. It has also issued bonus shares in the ratio of 5 for 1 in September 2018 and 9 for 5 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 1.31 and Rs. 64.91 (?) per share. There appears to be some mismatch in the cost of acquisition of shares by the promoters. 

Post-IPO, CMRSL’s current paid-up equity capital of Rs. 2.52 cr. will stand enhanced to Rs. 2.93 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 52.70 cr. (at the upper cap).

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, CMRSL has (on a consolidated basis) posted a turnover/net profit of Rs. 38.70 cr. / Rs. 0.27 cr. (FY19), Rs. 30.47 cr. / Rs. 0.08 cr. (FY20), Rs. 30.16 cr. / Rs. 0.66 cr. (FY21), and Rs. 56.78 cr. / Rs. 1.51 cr. (FY22). Bumper results for the pre-IPO year appear to be a window dressing. However, the management claims that due to higher margin jobs done by it resulted in better earnings.

For the last three fiscals, CMRSL has (on a consolidated basis) reported an average EPS of Rs. 3.36 and an average RoNW of 28.01 %. The issue is priced at a P/BV of 12.37 based on its NAV of Rs. 14.55 as of March 31, 2022, and at a P/BV of 4.79 based on its post-IPO NAV of Rs. 37.61 per share (at the upper cap).

If we attribute FY22 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 34.95.

DIVIDEND POLICY:
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, CMRSL has shown Affle India, Brightcom Group, and Vertoz Advertising as their listed peers. They are currently trading at a P/E of 323.83, 00, and 39.34 (as of September 2022). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the fourth mandate from Swastika Investmart in the last four fiscals (including the ongoing one). Out of the last three listings, 1 opened at discount, 1 at par, and 1 at a premium of 4.17%. Thus it has marked a poor track record.

Conclusion / Investment Strategy

The group has similar activities in its many subsidiaries. The parent company Cyber Media India is languishing with average performance and no dividends since 2008. This company (CMRSL) has priced its IPO very aggressively with super results for FY22. The sustainability of such performance going forward raises concern. A small equity base post IPO indicates longer gestation for migration to the main board. There is no harm in skipping this pricy issue.

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