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DU Digital NSE SME IPO review (Avoid)

Review By Dilip Davda on Aug 10, 2021


•    DDTL is engaged in providing Visa Processing services to few embassies.  
•    It has posted poor financial data for the last three fiscals.
•    Considering IPO expenses, the issue is fully structured.
•    The issue is exorbitantly priced and the asking price does not match its performance.
•    One can avoid this highly-priced offer that might take a long time for migration to the mainboard.

ABOUT COMPANY:
DU Digital Technologies Ltd. (DDTL) is in the business of providing Visa Processing Services to embassies of various countries. It manages the human interface between the visa applicant and the technical visa processing unit of the embassy of the country for which the company is awarded the contract or subcontract. The company's role is administrative and non-judgmental tasks related to visa application, digitalization, document verification and biometric data collection for its customers.

This in turn enables the respective government authorities to focus entirely on the critical task of assessment. DU Digital does not play any part in the decision-making process behind visa approvals being granted or denied. Currently, it is providing a human interface of visa processing services for Greece and Malaysia in and for India by way of various sub-contracts awarded to the group.

The services under these contracts include i) Accepting documents on behalf of the Ministry and facilitate the Ministry. ii) Attestation services iii) Collection of fingerprints, facial photos, retina scans, etc. with/without passport processing. Along with this DDTL also offers Value Added Services (VAS) to support applicants. These include but are not limited to Premium Lounge, Primetime application, Mobile Biometrics, Form Filling, SMS alert, Courier services etc.

The current outbreak of the COVID-19 pandemic has adversely impacted the global economy. The World Health Organization declared the outbreak of COVID-19 as a public health emergency of international concern on January 30, 2020, and a pandemic on March 11, 2020. The Government of India announced a nationwide lockdown on March 24, 2020, and imposed several restrictions. In view of the nationwide lockdown announced by the Government of India to control the spread of COVID19, DDTL's business operations were temporarily disrupted/slowed down from March 24, 2020. Further, since the national borders across the globe were closed and travelling between different countries almost ceased, the visa processing activities slowed down to a large extent. Though the company has resumed its operations in a phased manner, it is still facing uncertainty due to starting of the second and third waves. As of March 31, 2021, it had around 29 employees on its roll.

DDTL is doing all efforts to expand its customer base and arrangements with other companies that are outsourcing such services in and around the Indian continent.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 1.52 cr.), investment in the subsidiary company (Rs. 1.40 cr.) and general corpus funds (Rs. 1.10 cr.), DDTL is coming out with a maiden IPO of 690000 equity share of Rs. 10 each with a fixed price of Rs. 65 per share to mobilize Rs. 4.49 cr. The issue opens for subscription on August 12, 2021, and will close on August 17, 2021. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.54% of the post issue paid-up capital of the company. DDTL will be spending Rs. 0.47 cr. for the entire IPO process. This indicates that the issue is pre-sold i.e. it's a structured issue.

The issue is solely lead managed by Hem Securities Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Finlease Pvt. Ltd. is acting as a market maker for the issue.

The company has issued entire equity at par and has also issued bonus shares in the ratio of 140 for 1 share in June 2021. The average cost of acquisition of shares by the promoters is Rs. 0.07 per share.

Post issue, DDTL's current paid-up equity capital of Rs. 1.91 cr. will stand enhanced to Rs. 2.60 cr. At the IPO price, the company is looking for a market cap of Rs. 16.90 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DDTL has posted turnover/net profits of Rs. 37.48 cr. / Rs. 0.71 cr. (FY19), Rs. 32.06 cr. / Rs. - (0.24) cr. (FY20) and Rs. 2.27 cr. / Rs. 0.11 cr. (FY21). While its top and bottom lines marked declining trends, for FY21 it posted a drastically lower top line with a good surplus in a pre-IPO year and is a surprising one as it incurred a loss for FY20.

For the last three fiscals, DDTL has posted an average EPS of Rs. 0.67 and an average RoNW of 5.13%. The issue is priced at a P/BV of 5.93 based on its NAV of Rs. 10.97 as of March 31, 2021, and at a P/BV of 2.59 based on its post-issue NAV of Rs. 25.14.

If we attribute FY21 earnings on fully diluted post issue equity, then the asking price is at a P/E of 154.76 making it an exorbitantly priced IPO with no match with its financial data so far.

DIVIDEND POLICY:
The company has not declared any dividend on the equity shares in the last five years. It will follow a prudent dividend policy post listing based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per offer documents, DDTL has shown BLS International Services as its listed peer. It is currently trading around 00 P/E (as of August 10, 2021). However, they are not truly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORDS:
This is the 31st mandate from Hem Securities in the last five fiscals (including the ongoing one). Out of the last 10 listings, 4 issues opened at par and the rest between premiums ranging from 0.38% to 37.25% on the day of listing.


Conclusion / Investment Strategy

While the company has suffered severe setbacks for FY21 after marking declining trends in the top and bottom lines for the previous two years, it is pricing its IPO exorbitantly above 154 P/E. Post-IPO its equity will be just around 2.60 cr. indicating a pretty long time for migration to the mainboard. There is no harm in giving this issue a 'MISS'

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Aug 10, 2021

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

DU Digital Technologies IPO FAQs

  1. 1. Why DU Digital Technologies IPO?

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

  2. 2. How is DU Digital Technologies IPO?

    Read the DU Digital Technologies IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. DU Digital Technologies IPO what should investors do?

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

  4. 4. Is DU Digital Technologies IPO good?

    Our recommendation for DU Digital Technologies IPO is to avoid.

  5. 5. Is DU Digital Technologies IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the DU Digital Technologies IPO.

  6. 6. When will DU Digital Technologies IPO allotment status?

    The DU Digital Technologies IPO allotment status will be available on or around Aug 23, 2021. The allotted shares will be credited in demat account by Aug 25, 2021. Visit DU Digital Technologies IPO allotment status to check.

  7. 7. When will DU Digital Technologies IPO list?

    The DU Digital Technologies IPO will list on Thursday, August 26, 2021, at NSE SME.

1 Comments

1. AvinashMB  Sep 1, 2021 11:30:15 AM
Dilip Sir , i guess you need to enjoy your retired life rather giving faltu suggestions here and missing guiding people