Indifra NSE SME IPO review (Avoid)

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Review By Dilip Davda on December 19, 2023

•    Indifra is providing services for gas pipeline and supply of electrical appliances.
•    It posted minuscule financial performance so far.
•    Based on FY24 annualized earnings, the issue is exorbitantly priced.
•    It is operating in a highly competitive and fragmented segment.
•    There is no harm in skipping this pricey issue. 

ABOUT COMPANY:
Indifra Ltd., an Airan Group company is primarily engaged in the business of pipeline and infrastructure management contracting services and distribution of electrical appliances. As on the date of this Prospectus, it caters to various gas distribution companies for management of their gas distribution pipelines. Under this vertical, in past, it has catered to Adani Gas Limited. As on date, the company is catering to Charotar Gas Sahakari Mandali Limited (CGSML), for gas pipeline management services. 

The successful execution of projects for CGMSL and Adani Gas Limited further enhanced its reputation as a reliable and preferred vendor amongst gas distribution companies. The company's commitment to delivering high-quality services, adherence to strict timelines, and continuous investment in cutting-edge technology sets it apart in the industry.

In FY 2017, the company seized upon an opportunity to expand its business horizon by venturing into the sales of electrical appliances. Recognizing the increasing demand for high-quality products that enhance the comfort and convenience of customers, the company became a key distributor for V Guard, a renowned brand in the electrical appliances industry, catering to the needs of customers in the Gujarat region. 

By leveraging its existing network and expertise in the gas pipeline management sector, it strategically capitalized on the synergies between the two businesses. The company's electrical appliances portfolio includes voltage stabilizers, induction cooktops, inverters, batteries, ceiling fans, domestic switch gears and distribution boards (DBs), air coolers, water heaters, modular switches, solar water heaters, air source heat pump water heaters, energy-saving fans, and room heaters. As of June 30, 2023, it had 11 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 2160000 equity shares of Rs. 10 each at a fixed price of Rs. 65 per share to mobilize Rs. 14.04 cr. The issue opens for subscription on December 21, 2023, and will close on December 26, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.63% of the post-IPO paid-up equity capital of the company. The company is spending Rs. 1.66 cr. for this IPO process and from the net proceeds, it will utilize Rs. 8.00 cr. for working capital, and Rs. 4.38 cr. for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd. and KFin Technologies Ltd. is the registrar of the issue. BEELINE Groups Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 1800 per share in April 2023. It has also issued bonus shares in the ratio of 170 for 1 in May 2023. The average cost of acquisition of shares by the promoters is Rs. 5.40, Rs. 10.40 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 5.13 cr. will stand enhanced to Rs. 7.29 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 47.39 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 3.07 cr. / Rs. 0.11 cr. (FY21), Rs. 10.92 cr. / Rs. 0.40 cr. (FY22), and Rs. 10.02 cr. / Rs. 0.99 cr. (FY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 0.04 cr. on a total income of Rs. 0.64 cr. Thus the financial data of the company for the reported periods is on a minuscule level. 

For the last three fiscals, the company reported an average EPS of Rs. 3.78 and an average RoNW of 74.40%. The issue is priced at a P/BV of 6.26 based on its NAV of Rs. 10.39 as of June 30, 2023, and at a P/BV of 2.45 based on its post-IPO NAV of Rs. 26.57 per share at the upper cap.

If we attribute super annualized earnings of FY24 on post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 342. Thus the issue appears exorbitantly priced based FY24 earnings. 

For the reported periods, the company has posted PAT margins of 3.48% (FY21), 3.66% (FY22), 9.90% (FY23), 5.64% (Q1-FY24), and RoCE margins of 58.92% 83.69%, 86.21% and 1.06% for the said periods respectively.  

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer documents. 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 RBM Infra as their listed peer. It is trading at a P/E of 139.90 (as of December 19, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 26th mandate from Beeline Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, all listed at premiums ranging from 2.67% to 85.71% on the day of listing.

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