HRH Next NSE SME IPO review (May apply)

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Review By Dilip Davda on December 23, 2023

•    HRH is in the BPO segment running a comprehensive suite of call centre services.
•    The company marked growth in its top lines for the reported periods. 
•    The sudden boost in its bottom lines from FY23 onwards raises eyebrows.
•    The sustainability of such margins going forward is a major concern.
•    Well-informed investors may park moderate funds in this fully priced issue.

ABOUT COMPANY:
HRH Next Services Ltd. (HNSL) is engaged in Business Process Outsourcing (BPO) offering a comprehensive suite of Call Centre Services, covering Inbound Services, Outbound Services, Backend Support, Chat Support, Email Support and more. Its specialty is in providing efficient end-to-end solutions to clients. The company customizes its top-notch solutions to meet specific business needs, helping our clients achieve their objectives.

Currently the company operates from its eight locations that includes one registered office and seven branch offices. The company is going ahead with expansion of its locations. Its services include Business Process Outsourcing Services, Inbound/Outbound Services through Phone, E-mail, Chat, Social Media and Digital Channels, Business Support Service, Chatbot Support, Advisory and Related Consulting Services.

The company has been in the current line of business for more than a decade and the client lists include various Telecom, Foodtech, Autotech, E-Commerce, Fintech, Education, Healthcare, Government, Banking etc. Also, it helps clients with its Call Centre Services to provide a comprehensive range of services across all industry sectors to clients who are in need of special assistance. As of November 30, 2023, it had 284 employees on its payroll, and 1635 associate employees at various locations. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2658000 equity shares of Rs. 10 each at a fixed price of Rs. 36 per share to mobilize Rs. 9.57 cr.  The issue opens for subscription on December 27, 2023, and will close on December 29, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.87% of the post-IPO paid-up capital of the company. It will spend Rs. 1.50 cr. for the IPO process and from the surplus, it will utilize Rs. 1.35 cr. for launching 2 call centres, Rs. 4.30 cr. for purchase of computer system, Rs. 0.92 cr. for working capital, Rs. 1.50 cr. for general corporate purposes. IPO process spending indicates fully structured model of this IPO.

The issue is solely lead managed by Finshore Management Services Ltd., and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued most of its initial equity shares as par value, the company issued further equity shares at a fixed price of Rs. 36 per share in September 2023. It has also issued bonus shares in the ratio of 30 for 1 in July 2023. The average cost of acquisition of shares by the promoters is Rs. 00, Rs. 0.33 and Rs. 1.61 per share. 

Post-IPO, HNSL's current paid-up equity capital of Rs. 6.55 cr. will stand enhanced to Rs. 9.21 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 33.14 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total revenue/net profit of Rs. 24.24 cr. / Rs. 0.25 cr. (FY21), Rs. 44.28 cr. / Rs. 0.93 cr. (FY22), and Rs. 51.25 cr. / Rs. 3.48 cr. (FY23). For H1 of FY24, it earned a net profit of Rs. 1.51 cr. on a total revenue of Rs. 21.53 cr. 

For the last three fiscals, the company reported an average EPS of Rs. 3.37, and an average RoNW of 21.79%. The issue is priced at a P/BV of 1.79 based on its NAV of Rs. 20.17 as of September 30, 2023, and at a P/BV of 1.56 based on its post-IPO NAV of Rs. 23.11 per share. 

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 10.98. The issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.04% (FY21), 2.11% (FY22), 6.80% (FY23), 7.05% (H1-FY24).

DIVIDEND POLICY:
The company has not declared any dividends for any reported financial years. 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 Platinumone Business, Kandarp Dig, WE Win as their listed peers. They are trading at a P/E of 12.16, 14.12, and 42.42 (as of December 22, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 24th mandate from Finshore Management in the last three fiscals. Out of the last 10 listings, 3 opened at discount, 1 at par and the rest with premiums ranging from 34.66% to 94.44% on the date of listing.

HRH Next Services IPO FAQs