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Alphalogic Techsys BSE SME Startup IPO review (Others)

Review By Dilip Davda on Aug 21, 2019

•    ATL's FY19 super earnings raise eyebrows.  Sustainability of such earnings appears remote.
•    Based on recent earnings, the issue appears fully priced even at the revised rate.
•    ATL focusing on export revenues that have higher acceptability with good margins.
•    IPO size and price lowered due to subdued market sentiment.

ABOUT COMPANY:
Alphalogic Techsys Ltd. (ATL) is a startup venture that is engaged in providing clients with Technology Consulting services, offering end-to-end technology solutions and support. Its clients range from start-ups to established companies, engaged in Healthcare, Saas Software, E-commerce, Fintech, Social Networking, and other industries. ATL provides a wide range of services, including, Web Application Development, Mobile Application Development, UI/UX Consulting, Business Intelligence and Data Analytics services. The company continuously evolve services and customize offerings as per the need of our clients.

Alphalogic helps its clients with automating their business processes. Alphalogic' BPA suite helps businesses automate, monitor and optimize business processes for better outcomes. Business process management software (BPMS) is software in which people use various methods to discover, model, analyze, measure, improve, optimize, and automate business processes. BPMS focuses on improving the organization's performance by managing business processes. Any combination of methods used to manage a company's business processes is BPM. Processes can be structured and repeatable or unstructured and variable. Alphalogic provides one of the most intuitive business process automation suite on the market for SMB's involved in manufacturing or distribution of commodities. Over 90% of revenue is coming from exports and the rest from domestic markets.

ATL's client list includes 10xHealth Inc., Venture Harbour Limited, Vikas Associates, A.P Moller Maersk, Payback Card, Artfire.com, Forbes Marshall, American Homeowner Preservation LLC, Haplo, Inc., Cloud Lending, Inc, AccessTruth Limited, A2Z Stores and contributes over 60% in revenues. ATL is working on monthly retention contracts.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital (Rs. 5 cr.)and general corpus (Rs. 0.71 cr.) fund needs, ATL is coming out with a maiden IPO of 736000 equity shares of Rs. 10 each at a fixed price of Rs. 84 per share to mobilize Rs. 6.18 cr. The issue opens for subscription on 26.08.19 and will close on 28.08.19. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME Startup. ATL is spending Rs. 0.47 cr. for this IPO process. Issue constitutes 26.51% of the post issue paid-up capital of the company. The issue is solely lead managed by Finshore Management Services Ltd. while Cameo Corporate Services Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this IPO. Having issued initial equity at par, it raised further equity at a price of Rs. 165 per share in March 2019 and has also issued bonus shares in the ratio of 14 for 1 in June 2019. Thus the company's coffers are almost empty. The average cost of acquisition of shares by the promoters is Rs. 3.40 per share.  Post issue ATL's current paid-up equity capital of Rs. 2.04 cr. will stand enhanced to Rs. 2.78 cr.

As per draft offer documents filed in June 2019, ATL planned to mobilize Rs. 7.72 cr. with an issue of 780000 equity shares at a fixed price of Rs.99 per share. But with subdued market sentiment, it has lowered the size and the price of the issue.

FINANCIAL PERFORMANCE:
For the last three fiscals, ATL has posted turnover/net profits of Rs. 1.90 cr. / Rs. 0.34 cr. (FY17), Rs. 2.21 cr. / Rs. 0.37 cr. (FY19) and Rs. 5.10 cr. / Rs. 2.19 cr. (FY19). Thus sudden jump in the bottom line is a bit surprising. According to management, since the preliminary work and expenses were already incurred in previous years for a big contract executed in FY19 with good margins has resulted in boosting its bottom line by over 43%. However, the company hopes to maintain better margins coupled with growth in top lines going forward. ATL is working on an asset-light model. ATL specializes in the business of healthcare and large scale SAAS software development. Being a niche field, ATL enjoys better margins for such contracts with premium pricing. Based on long term relations with top 10 customers, ATL is hoping to maintain reasonable growth for the coming years.

Due to bumper profits of FY19, for the last three fiscals, it has posted an average EPS of Rs. 6.25 and an average RoNW of 200.16%.  The issue is priced at a P/BV of 7.73 on the basis of its NAV of Rs. 10.86 as on 31.03.19 and at a P/BV of 2.78 on the basis of post-issue NAV of Rs. 30.25. Sustainability of super profits of FY19 is a major concern. Based on average EPS, the issue is priced at a P/E of 13.44 and on the basis of FY19 earnings, it is at a P/E of 7.82. If we attribute FY19 earnings on fully diluted equity than the issue is priced at a P/E of around 10.66. Issue appears fully priced on the basis of FY19 earnings.

COMPARE WITH LISTED PEERS:
As per offer documents, it has shown Xelpmoc Designs and Info Beans as sits listed peers that are currently trading at a P/Es of around (00) and 7.6 (as on 21.08.19). However, they are not fully comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, on an overall basis this is the 14th mandate from its stable (including the IPO of Alumilite Arch that stood withdrawn post-closure of the issue with full subscription). Out of last 10 listings, 2 opened at discount, 1 at par and the rest at premiums ranging from 1.63% to 20.67%. Thus it has an average track record.


Conclusion / Investment Strategy

Company's performance on the basis of FY19 super earnings raises concern. However, on the basis of recent earnings (with super-profits in the pre-IPO year), the issue appears fully priced. Risk savvy cash surplus investors may consider moderate investment at their own risk. (Other).

Reviewer not sure about the issue.

Review By Dilip Davda on Aug 21, 2019

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 prior to making any actual investment decisions, based on information published here. With entry barriers, SEBI wants only well informed investors to participate is such offers. With crazy recent listings, SME IPOs have started drawing attention of investors across the board. However, as SME issues have entry barriers and continued low preference from broking community, any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on information available as on date coupled with market perceptions. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

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

The Alphalogic IPO Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered IPO Analysts tells you if Alphalogic IPO worth investing. The Alphalogic IPO Note sets the IPO expectations in systematic way which tells you if Alphalogic IPO good to buy (good or bad / yes or no). The IPO Forecast tells you weather to invest in Alphalogic IPO by providing IPO recommendations i.e. subscribe, avoid and neutral.


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