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Olatech Solutions BSE SME IPO review (Avoid)

Review By Dilip Davda on Aug 8, 2022

•    OSL is engaged in IT-related services and solutions. 
•    It has posted declining trends for its top line for the last three fiscals. 
•    Super earnings for FY22 appear to be window dressing.
•    The issue is fully priced based on super earnings of the latest fiscal. 
•    There is no harm in skipping this IPO which is fully arranged.

ABOUT COMPANY:
Olatech Solutions Ltd. (OSL) is engaged in the business of Data Centre, Enterprise, Telecom and IT Software solutions in the OSS - BSS (Operations Support System and Business Support System) segment. It provides software solutions and transformation services (System Integration) to clients and has deployed its software solutions at various institutions in India and other regions also. Through a wide range of offerings across verticals, it possesses capabilities spanning the lifecycle of services ranging from consultation, architecture, solution design, and implementation to monitoring and providing managed services. 

OSL's software solutions are offered under the registered trademark "Epiphany". Key offerings include software solutions such as NOC tools, Network monitoring, management & analytics, secured authentication and accounting of users & devices, Data Centre Infrastructure Management etc. It has gained experience by collaborating with clients across verticals such as Telcos, ISPs, Enterprises, Data Centre Service Providers, Public Sector to create a foundation for the evolution of offerings across the verticals. As of March 31, 2022, OSL has around 10 employees on the payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 0.88 cr.), general corporate purposes (Rs. 0.45 cr.), OSL is coming out with a maiden IPO of 700000 equity shares of Rs. 10 each at a fixed price of Rs. 27 per share to mobilize Rs. 1.89 cr. The issue opens for subscription on August 12, 2022, and will close on August 19, 2022. Minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.91% of the post-IPO paid-up capital of the company. OSL is spending Rs. 0.56 cr. for this IPO process. This indicates the structured nature of this IPO with funding arrangements.

The issue is solely lead managed by Shreni Shares Pvt. Ltd., Skyline Financial Services Pvt. Ltd. is the registrar to the issue.  Shreni Shares Pvt. Ltd. is also a market maker for this IPO. 

The company has issued entire equity at par and has also issued bonus shares in the ratio of 163 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 0.06 per share. 

Post-IPO, OSL's current paid-up equity capital of Rs. 1.64 cr. will stand enhanced to Rs. 2.34 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 6.32 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, OSL has posted turnover/net profits of Rs. 8.35 cr. / Rs. 0.52 cr. (FY20), Rs. 5.49 cr. / Rs. 0.12 cr. (FY21) and Rs. 2.62 cr. / Rs. 0.35 cr. (FY22). While its top line has marked declining trends, its bottom line posted inconsistency. A higher net on lower turnover for FY22 indicates window dressing. The sustainability of such performance going forward is a major concern.  

For the last three fiscals, OSL has reported an average EPS of Rs. 1.84 and an average RoNW of 21.09%. The issue is priced at a P/BV of 2.69 based on its NAV of Rs. 10.02 as of March 2022. The documents are silent on their post-IPO NAV data. 

If we attribute FY22 higher earnings on post IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 18 making it a fully priced IPO with concern over the sustainability of margins reported. 

COMPARISON WITH LISTED PEERS:
As per the offer document, OSL has shown Sterlite Technologies and Megasoft Ltd as its listed peers. They are currently trading at a P/E of 00 and 125.44 (as of August 08, 2022). They are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
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. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 12th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with premiums ranging from 0.6% to 59.73% on the day of listings.


Conclusion / Investment Strategy

The company is in a highly competitive and fragmented segment. Its declining top line as well as the sustainability of super margins reported for FY22 raises concern. Around 29.6% of spending on the IPO process indicates the closure of funding arrangements for the IPO within close circles. A small equity base post-IPO also indicates longer duration for migration to mainboard. Better to stay away from this fully priced IPO.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Aug 8, 2022

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

Olatech Solutions IPO FAQs

  1. 1. Why Olatech Solutions IPO?

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

  2. 2. How is Olatech Solutions IPO?

    Read the Olatech Solutions IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Olatech Solutions IPO what should investors do?

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

  4. 4. Is Olatech Solutions IPO good?

    Our recommendation for Olatech Solutions IPO is to avoid.

  5. 5. Is Olatech Solutions IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Olatech Solutions IPO.

  6. 6. When will Olatech Solutions IPO allotment status?

    The Olatech Solutions IPO allotment status will be available on or around Aug 24, 2022. The allotted shares will be credited in demat account by Aug 26, 2022. Visit Olatech Solutions IPO allotment status to check.

  7. 7. When will Olatech Solutions IPO list?

    The Olatech Solutions IPO will list on Monday, August 29, 2022, at BSE SME.

2 Comments

2. Divas   I Like It. | Report Abuse |   Link | Aug 24, 2022 3:00:11 PM Reply
OlaTech is in its nascent stage. How can Sterlite Technologies or Megasoft be its competitor. Trend of making money through valuation and IPO route looks to have been followed here.
1. MillenialConsumer   I Like It. | Report Abuse |   Link | Aug 11, 2022 1:03:43 PM Reply
@dilipdavda

Went through your recommendation and found the following discrepancies -
1. In peer analysis you have mentioned names of Page Industries and Monte Carlo, which are not the peer companies.
2. The PE of Megasoft Limited is not correct.
3. This is not the 12th IPO of the Merchant Banker.

There are people who follow your recommendation and would be misguided from your wrong factual information.
So, please take some time to write a recommendation with correct facts and figures.