Euphoria Infotech BSE SME IPO review (Avoid)
• EIIL is a full stack IT and ITes solution provider mainly in West Bengal region.
• The company posted fluctuating top and bottom lines for the reported periods.
• The sudden boost in its bottom lines for the last 18 months’ raises concern over its sustainability.
• Tiny post-IPO equity capital indicates longer gestation for migration to mainboard.
• There is no harm in skipping this aggressively priced bet.
ABOUT COMPANY:
Euphoria Infotech India Ltd. (EIIL) is a full-stack IT and ITes solution provider, based out at Kolkata, West Bengal. It provides services in the fields of Citizen Centric Application, Enterprise Resource Planning (ERP), E-Commerce, Application programming interface (API), Internet of Things (IoT), cloud based tools and application, data management etc. using standard software practices or through customized software development model depending upon the requirement of the clients which is backed by advanced technology and efficient team of software developers who tend to keep themselves abreast by undergoing continuous R&D activity.
EIL’s offerings can be classified into five broad categories namely, customized software, e-commerce, IoT, Artificial Intelligence and Machine Learning. The company is engaged in the business of customized web application development for industry and general citizens. The applications range from Online Recruitment, Online Application, Urban Local Body services, University management system, Online Ticket Booking Systems, E-commerce and IoT-based dashboards for Sewerage Treatment Plant (STP) and similar industry specific requirements. It is developing different products for the education domain and citizen-centric services.
The company is also providing consultation to different clients from multiple-spectrum to develop, implement and maintain different customized software to enhance the efficiency and growth of the company. It has become a technology partner to different government and financial organizations including more than 100 municipalities in West Bengal.
EIIL is a channel partner of Webel Technologies Limited, which is the nodal agency for implementation of ITes in the departments and organizations of the Govt. of West Bengal and floats tenders on behalf of departments and organizations of the Govt. of West Bengal. As of November 30, 2023, it had 48 employees on its payroll.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 960000 equity shares of Rs. 10 each to mobilize Rs. 9.60 cr. at the upper cap. It has announced a price band of Rs. 96 – Rs. 100 per share. The issue opens for subscription on January 19, 2024, and will close on January 23, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 33.08% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO funds, it will utilize Rs. 6.83 cr. for working capital and the rest for general corporate purposes.
After reserving up to 48000 shares for Market Maker, the company has allocated not more than 3.03% for QIBs, not less than 67.89% for Retail investors, and not less than 29.08% for HNIs.
The issue is solely lead managed by Khandwala Securities Ltd., and Mas Services Ltd. is the registrar of the issue. Giriraj Stock Broking Pvt. Ltd. is the market maker for the company.
The company has issued entire equity capital at par value so far, and has also issued bonus shares in the ratio of 150 for 1 in January 2023. The average cost of acquisition of shares by the promoters is Rs. 0.032 and Rs. 0.035 per share.
Post-IPO, company’s current paid-p equity capital of Rs. 1.94 cr. will stand enhanced to Rs. 2.90 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 29.02 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total revenue/net profit of Rs. 5.56 cr. / Rs. 0.26 cr. (FY21), Rs. 4.94 cr. / Rs. 0.20 cr. (FY22), and Rs. 7.38 cr. / Rs. 1.30 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 0.61 cr. on a total revenue of Rs. 3.66 cr. Thus it posted fluctuating top and bottom lines for the reported periods. Sudden jump in profits for the last 18 months’ performance raises eyebrows and concern over its sustainability going forward.
For the last three fiscals, the company has reported an average EPS of Rs. 3.91, and an average RoNW of 19.85%. The issue is priced at a P/BV of 4.13 based on its NAV of Rs. 24.24 as of September 30, 2023, and at a P/BV of 2.03 based on its post-IPO NAV of Rs. 49.30 per share (at the upper cap).
If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 23.98. Thus the issue appears aggressively priced.
The offer document is missing KPI financial data. However, this data was published with IPO price band ad. For the referred periods, the company has posted PAT margins of 4.71% (FY21), 4.03% (FY22), 17.58% (FY23), 16.55% (H1-FY24), and RoCE margins of 13.12%, 11.94%, 36.70%, 14.73% respectively for the referred periods.
DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Infobeans Techno and Xchanging Solutions as their listed peers. They are trading at a P/E of 37.5 and 83.54 (as of January 16, 2024). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER’S TRACK RECORD:
As per the offer document, this is the 3rd mandate from Khandwala Securities in the current fiscal. Out of the last two listings, all opened at premiums ranging from 7.35% to 33.33% on the date of listing.
Conclusion / Investment Strategy
The company is West Bengal centric IT and ITes solutions provider. It posted fluctuating top and bottom lines for the reported periods. The sudden boost in bottom lines for the last 18 months’ performance raises concern over its sustainability. The small equity capital post-IPO indicates longer gestation period for migration to mainboard. Based on annualized super FY2 earnings, the issue appears aggressively priced. There is no harm in skipping this risky bet.
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.
Email: dilip_davda@rediffmail.com
Courtesy: https://www.chittorgarh.com/
