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Dharni Capital BSE SME IPO review (Avoid)

Review By Dilip Davda on January 13, 2023

•    DCSL offers diversified financial services to its clients.
•    Sudden boost in net profits for H1 of FY23 raising eyebrows.
•    Based on the super earnings, the issue is priced aggressively. 
•    Its peer comparison is a bit surprising and shocking. 
•    There is no harm in skipping this pricey issue. 

Dharni Capital Services Ltd. (DCSL) offers diversified financial services such as Mutual Fund Distribution Services, Fixed Deposit Distribution Services, Real Estate Brokerage Services, Technical Consultancy, and Outsourcing. The modus operandi is to counsel individual clients, understand their profile, needs, and concerns, build customized financial investment portfolios, and offer a comprehensive selection of investment alternatives that will suit their financial goals. 

DCSL offers a technology-enabled, comprehensive investment and financial services platform with end-to-end solutions critical for financial products distribution and presence across both online and offline channels. It is a growing Mutual Fund distributor in terms of commission and average asset under management (AAUM) with a CAGR of 109% and 86% respectively for the three-year period ending Fiscal 2022. The increase in the rate of commission is lesser as there was an increase in assets in the Debt Mutual fund category, which has a lower commission percentage. 

The company provides technical consultancy and outsourcing services. It takes projects from clients and thereafter sub-distributes the same to various professional individuals and organizations. It has a good network of professionals including IIT Graduates, IIM Graduates, Chartered Accountants, and other experienced personnel, who deliver these projects to the clients. The invoicing is done by the company in its own name and thereafter appropriate fees are paid to the individual professionals and organizations run by such professionals. As on January 06, 2023, the Company has employed 3 employees.

The company is coming out with its maiden IPO of 5370000 equity shares of Re. 1 each at a fixed price of Rs. 20 per share to mobilize Rs. 10.74 cr. The issue opens for subscription on January 18, 2023, and will close on January 20, 2023. The minimum application to be made is for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.36% of the post-issue paid-up capital of the company. DCSL is spending Rs. 0.33 cr. for this IPO process and from the net proceeds, it will use Rs. 8.00 cr. for investment in a wholly owned subsidiary and Rs. 2.41 cr. for general corporate purposes. 

Srujan Alpha Capital Advisors LLP is the sole lead manager for this issue, and Cameo Corporate Services Ltd. is the registrar of the issue.  Sunflower Broking Pvt. Ltd. is the market maker for this company.
The company has after issuing initial equity shares at par, issued further equity shares at a fixed price of Rs. 34 per share in December 2021. It has also issued bonus shares in the ratio of 97 for 3 in February 2022. The average cost of acquisition of shares by the promoters is Rs. 0.78, and Rs. 1.02 per share. 

Post-IPO, DCSL's current paid-up equity capital of Rs. 1.50 cr. will stand enhanced to Rs. 2.04 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 40.74 cr. 

On the financial performance front, for the last three fiscals, DCSL has posted a total income/net profit of Rs. 0.20 cr. / Rs. 0.01 cr. (FY20), Rs. 2.55 cr. / Rs. 0.15 cr. (FY21), and Rs. 14.69 cr. / Rs. 0.97 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.59 cr. on a total income of Rs. 3.05 cr. The sudden boost in margins for H1 of FY23 is raising eyebrows.

For the last three fiscals, DCSL has reported an average EPS of Rs. 27.66 and an average RoNW of 61.44%. (appears it is based on pre-bonus equity). The issue is priced at a P/BV of 10.53 based on its NAV of Rs. 1.90 as of September 30, 2022, and at a P/BV of 3.05 based on its post-IPO NAV of Rs. 6.56 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 around 34.48. Thus the issue is aggressively priced. 

The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing based on its financial performance and future prospects. 

As per the offer document, DCSL has shown IIFL Wealth, ICICI Securities, CDSL, Computer Age Management, HDFC Asset Management, Nippon Life India, UTI Asset Management, Anand Rathi Wealth, and Prudent Corporate as their listed peers. They are currently trading at a P/E of 28.72, 12.54, 40.23, 40.87, 33.26, 24.01, 25.80, 20.17, and 64.83 (as of January 13, 2023). However, they are not truly comparable on an apple-to-apple basis. Comparison with big players is a really shocking one. 

This is the first mandate from Srujan Alpha in the current fiscal. It has no track records of past mandate listing. 

Conclusion / Investment Strategy

The company is operating in a highly competitive segment. The sudden boost in its profits for H1 of FY23 raises eyebrows. Based on these super earnings, the issue is aggressively priced. A very small equity base post-IPO indicates longer gestation for migration to the mainboard. There is no harm in skipping this pricey issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on January 13, 2023

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. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. 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 their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.

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.

(Dilip Davda -SEBI registered Research Analyst-Mumbai,

Registration no. INH000003127 (Perpetual)

Email id: ).

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  4. 4. Is DHARNI Capital Services IPO good?

    Our recommendation for DHARNI Capital Services IPO is to avoid.

  5. 5. Is DHARNI Capital Services IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the DHARNI Capital Services IPO.

  6. 6. When will DHARNI Capital Services IPO allotment status?

    The DHARNI Capital Services IPO allotment status will be available on or around January 25, 2023. The allotted shares will be credited in demat account by January 30, 2023. Visit DHARNI Capital Services IPO allotment status to check.

  7. 7. When will DHARNI Capital Services IPO list?

    The DHARNI Capital Services IPO will list on Tuesday, January 31, 2023, at BSE SME.