AccelerateBS BSE SME IPO review (Avoid)

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Review By Dilip Davda on July 3, 2023

•    AIL is a digital technology company, operating in a highly competitive and fragmented segment.
•    It has posted minuscule financial performance so far. 
•    Boosted profits for FY23 (two-broker periods) raise eyebrows. 
•    Based on FY23 super earnings, the issue is aggressively priced. 
•    There is no harm in skipping this pricey bet. 

ABOUT COMPANY:
AccelerateBS India Ltd. (AIL) is a Digital Technology Services company offering a multitude of boutique technology services to both B2B and B2C companies around the world. Its services include Digital Technology Services, DXP (Digital Experience Platforms) Consulting and Implementation Services, Digital projects, custom software development and consulting services, and delivering powerful and scalable software systems. 

It has built 100% in-house capabilities across DXP platforms like Crownpeak, Optimizely, Contentful and Strapi are some of the industry-leading enterprise DXP platforms that AIL specialize in. The company has full-spectrum capabilities across these platforms and this includes Front-end, Middleware, Backend, and DXP layers as well as custom integrations with products like Salesforce, Marketo, Brightcove, Adobe Omniture, SAP Commerce etc. It has full-stack Microsoft and Node-based capabilities and is engaged in doing new-age decoupled builds with API first and microservices-based architectures. As of January 31, 2023, it had 38 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo IPO of 632000 equity shares of Rs. 10 each at a fixed price of Rs.90 per share to mobilize Rs. 5.69 cr. It comprises of fresh equity issue of 188800 shares (worth Rs. 1.70 cr.) and an Offer for Sale (OFS) of 443200 shares (worth Rs. 3.99 cr. The issue opens for subscription on July 06, 2023, and will close on July 11, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.41% of the post-issue paid-up capital of the company. AIL is spending Rs. 0.91 cr. for this IPO process (including Rs. 0.27 cr. for fresh equity issue), and from the net proceeds, it will utilize Rs. 1.09 cr. for working capital, and Rs. 0.34 cr. for general corporate purposes. The fresh equity issue is just around 30% of the total issue and the rest is by way of OFS. This indicates the promoter's exit at greedy pricing. 

Shreni Shares Ltd. is the sole lead manager as well as the market maker and Bigshare Services Pvt. Ltd. is the registrar of the issue. 

Having issued initial equity shares at par value, it issued further equity shares at a price of Rs. 100 per share in January 2023, and it has also issued bonus shares in the ratio of 3 for 2 in the same month. The average cost of acquisition of shares by the promoters is Rs. 9.18 per share. 

Post-IPO, AIL's current paid-up equity capital of Rs. 1.96 cr. will stand enhanced to Rs. 2.15 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 19.34 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, AIL has posted a turnover/net profit of Rs. 4.93 cr. / Rs. 0.68 cr. (FY20), Rs. 4.52 cr. / Rs. 0.43 cr. (FY21), and Rs. 3.56 cr. / Rs. 0.26 cr. (FY22). 

For the broken period of FY23, from April 01, 2022, to September 08, 2022, it posted a net profit of Rs. 0.33 cr. on a turnover of Rs. 1.83 cr. and from September 09, 2022, to January 31, 2023, it earned a net profit of Rs. 0.26 cr. on a turnover of Rs. 1.65 cr. Thus for 10M of FY23, it earned a net profit of Rs. 0.59 cr. on a turnover of Rs. 3.48 cr. Thus in a pre-IPO year, it posted an improved bottom line, which appears to be a window dressing. From FY20 to FY22 it marked a declining top line with inconsistent bottom lines. 

For the last three fiscals, AIL has reported an average EPS of Rs. 3.82 (on pre-bonus and RI equity base) and an average RoNW of 46.98%. The issue is priced at a P/BV of 8.32 based on its NAV of Rs. 10.82 as of January 31, 2023, and at a P/BV of 5.56 based on its post-IPO NAV of Rs. 16.20 per share. 

If we annualize FY23 super earnings and attribute it to post-IPO fully diluted paid-up equity capital then the asking price is at a P/E of 27.27 and on the basis of FY22 earnings, it stands at a P/E of 74.38. Thus the issue is priced aggressively. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Happiest Minds, Persistent Systems, Kellton Tech, Saksoft and CG-Vak as their listed peers. They are currently trading at a P/E of 66.78, 46.85, 72.03, 122.81, and 15.61 (as of July 03, 2023). While this comparison is a surprise, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 19th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at a discount and the rest listed at premiums ranging from 2.74% to 101.18% on the listing date. 

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