Finelistings Techno BSE SME IPO review (Avoid)

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Review By Dilip Davda on May 4, 2024

•    FTL is engaged in retailing pre-owned cars/ software development and digital transformation services. 
•    All these segment are facing competition and are fragmented ones. 
•    It turned the corner from FY23 onwards. 
•    Based on FY24 super annualized earnings the issue appears fully priced.
•    Higher margin shown from FY23 onwards appears to be fabricated one to fetch fancy valuations.
•    There is no harm in skipping this "High Risk/Low Return" bet.

ABOUT COMPANY:
Finelistings Technologies Ltd. (FTL) is engaged in diversified business viz., (a) retail of pre-owned luxury car; and (b) software development services, that address digital transformation, data analytics, technology consulting, infrastructure and security needs of customers. Its offerings are spread across the spectrum of various digital technologies such as cloud-based services, IT consulting services such as, big data analytics, cloud architecture, data engineering, IoT solutions and offering based solutions such as, business intelligence analytics, cloud development, cloud solutions, data management, digital transformation, IoT development and web development.

It currently has a limited presence over the pre-owned value chain, such as after sales services and repairs (including sales of spare parts, lubricants and accessories), which the company undertakes through its affiliated service centers. It also helps clients in securing financial assistance from third-party financers. The company started operations and opened its first showroom under the brand "Finecars" on August, 2022 at Ambience Mall, Vasant Kunj, National Capital Region (NCR). 

FTL's pre-owned luxury car business offers a wide range of cars, including sedans, SUVs, sports cars, and convertibles. All the vehicles it purchases are thoroughly inspected and certified, ensuring that they meet high standards for quality and reliability. In addition to selling vehicles, it also offers financing, warranties, and maintenance services to ensure that customers make the most of their investment. As of March 31, 2024, it had just 8 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1100000 equity shares of Rs. 10 each at a fixed price of Rs. 123 per share to mobilize Rs. 13.53 cr. at the upper cap. The issue opens for subscription on May 07, 2024, and will close on May 09, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 30.25% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.10 cr. for this IPO process and from the net proceeds, it will utilize Rs. 5.00 cr. for purchase of software, Rs. 5.00 cr. for working capital, and Rs. 2.43 cr. for general corporate purposes. 

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares in the price range of Rs. 25 - Rs.6010 per share between September 2020 and March 2023. It has also issued bonus shares in the ratio of 180 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 2.77 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.54 cr. will stand enhanced to Rs. 3.64 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 44.73 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ -(loss) of Rs. 1.46 cr. / Rs. - (0.17) cr. (FY21), Rs. 6.94 cr. / Rs. - (0.08) cr. (FY22), and Rs. 13.91 cr. / Rs. 1.79 cr. (FY23). For 11M of FY24 ended on February 29, 2024, it earned a net profit of Rs. 2.77 cr. on a total income of Rs. 13.60 cr. Thus after posting losses for FY21 and FY22, it turned the corner from FY23. Super margins from FY23 onwards appears to be a window dressing for getting fancy valuations for the IPO shares.

For the last three fiscals, it has reported an average EPS of Rs. 4.10, and an average RoNW of 14.52%. The issue is priced at a P/BV of 8.87 based on its NAV of Rs. 13.87 as of March 31, 2023, and at a P/BV of 2.27 based on its post-IPO NAV of Rs. 54.23 per share. There appears to be some miss-reporting on weighted average EPS on page no. 88 of the offer document. The offer document is also missing the NAV data as of February 29, 2024 (page no. 89)

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 14.80. 

For the reported periods, the company has posted PAT margins of - (11.79) % (FY21), - (1.20) % (FY22), 12.88% (FY23), 19.65% (11M-FY24), and RoCE margins of - (41.54) %, 0.23%, 52.37%, 21.73% respectively for the referred periods. 

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 CarTrade, Cambridge Techno, and Globalspace Techno as their listed peers. They are trading at a P/E of 55.1, 146 and 112 (as of May 03, 2024). However, they are not comparable on an apple-to-apple basis. This compare appears to be an eyewash. 

MERCHANT BANKER'S TRACK RECORD:
This is the 31st mandate from Fedex Securities in the last five fiscals (including the ongoing one), out of the last 10 listings (SME), all listed at a premiums ranging from 1.43% to 140.82% on the date of listing.

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