Vedant Asset BSE SME IPO review (Avoid)

•    VAL is providing services as a Corporate Business Correspondent in rural and semi-rural areas.
•    It has posted growth in the top and bottom lines but on minuscule levels. 
•    Based on FY22 earnings, the issue is exorbitantly priced. 
•    Its future prospects hinge on new initiatives for mATM’s success.
•    There is no harm in skipping this pricy IPO. 

ABOUT COMPANY:
Vedant Asset Ltd. (VAL) is engaged in the business as a Corporate Business Correspondent (BC) of Bank of India, Jharkhand Rajya Gramin Bank (JRGB), and Madhya Pradesh Gramin Bank (MPGB) and as Mutual Funds Distribution through a partner base of more than 350 Vedant Mitra partners working in various rural and semi-urban locations and handling more than 100 crores of assets under its Mutual fund distribution business. Its Vedant Mitra Kendra acts as Banking – Customer Services Point (CSPs) to fulfil all the necessary banking requirements of the people, Adhaar-enabled payment system, Direct Money Transfer (DMT), investment in Mutual Funds – mPOS, PAN-related services, Insurance services, Loan services and recharge services along with Air, rail and Bus ticketing, etc.

The company is also looking toward expanding its services in the field of disbursing Government DBT subsidies, Adhaar-linked subsidies, and providing essential services through its network of Vedant Mitra Kendra.

Under its Corporate Banking Correspondent services, the company is providing various Banking services in the rural, Semi-urban, and urban parts of Jharkhand and Madhya Pradesh. Under its mutual fund distribution business, it is currently acting as a broker for 22 different fund houses with an AUM of over 100 crores of which are ICICI Prudential Mutual Fund, Kotak Mutual Fund, Aditya Birla Sun Life Mutual Fund, SBI Mutual Fund, and Axis Mutual Fund are some prominent names. With the increased Government focus on digitalization and digital banking, VAL focuses to enhance the value proposition and planned to launch the Micro ATM (mATM services) which will enable banking services in rural and remote areas.

The same will be undertaken through the application of the VedantPay which will be connected to the small machines i.e. mATM, through which people in remote and rural areas which do not have banking facilities will be able to do banking transactions using this technology of withdrawing money. The customer can use their ATM, Debit, and Credit card to withdraw the money using the mATM machines through its partners. In this way, the partner attached with Vedantpay can earn through the commission and take the Banking facilities to these remote and rural locations. The money given to the customer will get transferred to the bank account of the Partner through the UPI mechanism. As of July 31, 2022, the Company has employed 20 employees at various levels of the Organization.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its funding needs for the business expansion (Rs. 1.07 cr.), working capital (Rs. 1.30 cr.), and general corporate purposes (Rs. 0.22 cr.), VAL is coming out with a maiden IPO of 750000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 3.00 cr. The issue opens for subscription on September 30, 2022, and will close on October 04, 2022. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.16% of the post-IPO paid-up equity capital of the company. VAL is spending Rs. 0.41 cr. for this IPO process.

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also the market maker for the company.

The company has issued/converted entire equity shares at par so far. The average cost of acquisition of shares by the promoters is Rs. 10.00 per share.

Post this IPO, VAL’s paid-up equity capital of Rs. 2.01 cr. will stand enhanced to Rs. 2.76 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 11.05 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, VAL has reported a total income/net profit of Rs. 0.61 cr. / Rs. 0.03 cr. (FY20), Rs. 1.13 cr. / Rs. 0.09 cr. (FY21), and Rs. 1.67 cr. / Rs. 0.14 cr. (FY22). Thus it has marked growth in its top and bottom lines. But its scale of top and bottom lines is minuscule.

For the last three fiscals, VAL has posted an average EPS of Rs. 0.63 and an average RoNW of 14.90%. The issue is priced at a P/BV of 3.53 based on its NAV of Rs. 11.34 as of March 31, 2022, and at a P/BV of 2.09 based on its post-IPO NAV of Rs. 19.12 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 80. 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, VAL has no listed peers to compare with.

DIVIDEND POLICY:
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 17th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.