Quicktouch Techno NSE SME IPO review (May apply)

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Review By Dilip Davda on April 13, 2023

•    QTL is engaged in ERP, EIMS and SAAS-related services and products. 
•    The company has posted fantastic results for the last 17 months.
•    The sustainability of margins reported is a major concern.
•    Based on its FY23 annualized earnings, the issue appears lucratively priced. 
• Well-informed/risk takers may consider parking funds for the medium to long-term rewards.

PREFACE:
Time and again, we are witnessing non-transparent disclosures from Share India Capital Services Pvt. Ltd. about their track records. We are unable to understand the attitude of this lead manager as we are finding many anomalies in their track record data in the recent mandates filed by them. It is really surprising how NSE has approved such incomplete info offer documents. (Refer to pages 233-234 of the offer document).

ABOUT COMPANY:
Quicktouch Technologies Ltd. (QTL) is engaged in the business of Enterprise Resource Planning (ERP) - A school management software and mobile apps that help simplify administration and organization. It is also dealing with two segments as far as the IT sector is concerned, one of them is providing Software as a Service (SAAS), namely EIMS and the other segment includes consultancy with respect to the development/support of applications/solutions for clients. 

These consulting/support services are related to applications from different industries such as finance, insurance, automotive, banking, etc. QTL's exposure to these industries involves development consulting and/or support services to various payment gateways, insurance and other financial products aggregating platforms and also to the loan management system for some of the financing companies including the development of their applications.

The company launched "QuickCampus", The Edutech Marketplace, on 24th December 2022 which is said to be India's first Edutech Marketplace. As of April 09, 2023, it had 22 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1530000 equity shares of Rs. 10 each at a fixed price of Rs. 61 per share to mobilize Rs. 9.33 cr. The issue opens for subscription on April 18, 2023, and will close on April 21, 2023. The minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes xx% of the post-IPO fully diluted paid-up equity capital of the company. QTL is spending Rs. 0.25 cr. for this IPO process and from the net proceeds, it will utilize Rs. 6.28 cr. for working capital, Rs. 1.40 cr. for the acquisition of the business in similar or complementary areas, and Rs. 1.40 cr. for general corporate purposes. 

For this IPO, we have two joint lead managers i.e. Share India Capital Services Pvt. Ltd. and Khambatta Securities Ltd. while Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Share India group company Share India Securities Ltd. is the market maker for the company. 

Having issued initial equity at par, the company issued further equity shares at a price of Rs. 110 per share in June 2022 and has also issued bonus shares in the ratio of 9 for 10 in March 2022, and 1 for 1 in June 2022. The average cost of the acquisition of shares by the promoters is Rs. 2.63 per share. 

Post-IPO, QTL's current paid-up equity capital of Rs. 4.25 cr. will stand enhanced to Rs. 5.78 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 35.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, QTL has posted a turnover/net profit of Rs. 2.66 cr. / Rs. 0.23 cr. (FY20), Rs. 7.28 cr. / Rs. 0.53 cr. (FY21), and Rs. 25.53 cr. / Rs. 2.21 cr. For the first seven months of FY23 ended on October 31, 2022, it earned a net profit of Rs. 4.30 cr. on a turnover of Rs. 28.13 cr. Thus the boost in its top and bottom lines for the last 19 months raise eyebrows. 

For the last three fiscals, QTL has reported an average EPS of Rs. 13.14 and an average RoNW of 38.46%. The issue is priced at a P/BV of 2.37 based on its NAV of Rs. 25.70 as of October 31, 2022, and at a P/BV of 1.74 based on its post-IPO NAV of Rs. 35.05 per share. 

If we annualize FY23 super earnings and attribute them to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 4.78. Thus the IPO appears lucratively priced. But it all depends on the sustainability of such margins going forward. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy it has framed in May 2022 post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Silver Touch, Sigma Solve and Cambridge Techno as their listed peers. They are currently trading at a P/E of NA, NA, and 30.15 (as of April 13, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
While Share India Capital is not having transparent info on its track record as the offer document shows only 1 mandate while this is its 6th mandate in the last six fiscals (including the ongoing one). Khambatta Securities has 4th mandate in the last three fiscals including the ongoing one. Out of the last 3 listings, all have opened at a premium ranging from 0.20% to 66.67% on the listing date.

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