DC Infotech NSE SME IPO review (Apply at your own risk)

Review By Dilip Davda on Dec 7, 2019

•    DCIC is an IT solution distribution house having a good network
•    The company follows a B2B and B2C business model to capture more market share.
•    The company is in a high volume less margin business.
•    Post-IPO its high debt-equity ratio will decline from 4.85 to 1.37.  
•    Though issue pricing appears reasonable based on FY20 Q1 earnings, sustainability is a major concern.


 ABOUT COMPANY:
DC Infotech & Communications Ltd. (DCIC) started its journey from a distribution-based business. However, over a period of time, it diversified from distribution-based business to Value-Added Distribution of Information Technology products, Networking, Security, surveillance, wireless, broadband, digital signage, firewall's, desktop virtualization, power solutions and other solutions like network performance, digital performance, cloud security, enterprise security, etc.


DCIC is an IT Solution distribution house in India that has commenced its operations with reselling and redistribution of IT hardware products like Cabinets, motherboard, etc. Engaged in the distribution business, the company has partnered with several networking and security brands for distribution in the country.


Currently, it operates with a dealer network of around 1600 dealers and through sales representatives. DCIC plays the role of an IT Distributor offering the bouquet of services. It acts as the link between the IT manufacturers/developers and end-users and other resellers. The Company is in the distribution business of hardware and software IT products which is a high-volume business, where the efficient management of stock plays a vital role and helps it to manage the complete supply chain right from the manufacturers and end-users. DCIC follows the B2B and B2C business model to provide complete Information Technology solutions and support to channel partners. The focus is to capture a considerable market share in each of the product categories. DCIC is distributing products of Brands/Vendors like Netgear, D-Link, ZScaler, Samsung, Aten, Avnet, Netscout, Riverbed, Delta Power, Sonicwall, Cisco, Moxa, Barracuda, Ncomputing, etc.  DCIC's clients include BPCL, Cosmos Bank, Hathway, L&T Fin., Syngenta, Nilkamal, IIT-Bombay, etc.


ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 7.65 cr.) and general corpus fund (Rs. 2.65 cr.) DCIC is coming out with a maiden IPO of 2400000 equity shares of Rs. 10 each at a fixed price of Rs. 45 per share to mobilize Rs. 10.80 cr. The issue opens for subscription on 12.12.19 and will close on 18.12.19. The minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 40% of the post issue paid-up capital of the company. DCIC is spending Rs. 0.50 cr. for the entire proceeds of this IPO.


The issue is solely lead managed by Fedex Securities Pvt. Ltd. and Satellite Corporate Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd. is the market maker for this issue. DCIC has converted entire current equity at par value. The average cost of acquisition of shares by the promoters is Rs. NIL per share. Post issue, DCIC's paid-up capital will stand enhanced from Rs. 3.60 cr. to Rs. 6.00 cr. Thus company mulls market capitalization of Rs. 27 cr.


FINANCIAL PERFORMANCE:
For the last three fiscals, DCIC has posted turnover/net profits of Rs. 108.79 cr. / Rs. 0.90 cr. (FY17), Rs. 97.56 cr. / Rs. 1.30 cr. (FY18) and Rs. 114.07 cr. / Rs. 1.34 cr. (FY19). For Q1 of FY20, it has clocked in the net profit of Rs. 0.91 cr. on a turnover of Rs. 36.49 cr. DCIC's top line has shown inconsistency. Its paid-up equity capital of Rs. 11.41 cr. as on 18.02.19 got reduced to Rs. 3.60 cr. as on 31.03.19 as per the scheme of MoA for the conversion of a partnership firm. (FY19 financial figures are combined for partnership firm up to 18.02.19 and as a limited company from 19.02.19 to 31.03.19). TheA sudden spurt in the bottom line since it became a limited company is a bit surprising.


For the last three fiscals, DCIC has posted an average EPS of Rs. 3.48 and an average RoNW of 9.42%. The issue is priced at a P/BV of 3.15 based on its NAV of Rs. 14.28 as on 30.06.19 (as per restated financial data) and at a P/BV of 1.02 based on post-IPO NAV of Rs. 44.08. DCIC has not paid any dividends so far. Its current high debt-equity ratio of 4.85 will come down to 1.37 post issue.


If we annualize FY20 Q1 earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 7.4 against the industry average of 18.59.


COMPARISION WITH LISTED PEERS:
As per offer documents, DCIC has shown Creative Peripherals and Redington India as its listed peers. They are currently trading at a P/E of 11.77 and 15.56 (as on 06.12.19). However, they are not strictly comparable.


MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 10th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 9 listings, one issue opened at a discount, one at par and the rest with a premium ranging from 0.16% to 56.52% on the day of listings.

 


Conclusion / Investment Strategy

The company is in the "High Volume - Low margin" segment that has cut-throat competition with a fragmented unorganized sector. For the past four fiscals, its top line has shown inconsistency. Peers are way ahead in top-line comparison. The sudden boost in margins since it converted in a limited company on 19.02.19 raises concern. Based on the latest financial numbers, issue pricing looks reasonable, but sustainability remains a major worry going forward. Considering these, cash surplus - risk savvy investors may consider investment at their own risks.

Review By Dilip Davda on Dec 7, 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 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

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

DC Infotech IPO FAQs

  1. 1. Why DC Infotech IPO?

    The initial public offer (IPO) of DC Infotech and Communication Ltd offers an early investment opportunity in DC Infotech and Communication Ltd. A stock market investor can buy DC Infotech IPO shares by applying in IPO before DC Infotech and Communication Ltd shares get listed at the stock exchanges. An investor could invest in DC Infotech IPO for short term listing gain or a long term.

  2. 2. How is DC Infotech IPO?

    Read the DC Infotech IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. DC Infotech IPO what should investors do?

    DC Infotech IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the DC Infotech IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.

  4. 4. Is DC Infotech IPO good?

    Sorry, we didn't rate the DC Infotech IPO.

  5. 5. Is DC Infotech IPO worth Investing?

    Our lead analyst Mr. Dilip Davda didn't rate the DC Infotech IPO.

  6. 6. When will DC Infotech IPO allotment status?

    The DC Infotech IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit DC Infotech IPO allotment status to check.

  7. 7. When will DC Infotech IPO list?

    The DC Infotech IPO will list on Friday, December 27, 2019, at NSE SME.








Search Chittorgarh.com:

Download Our Mobile App

Android App iOS App