Rashi Peripherals IPO review (May apply)

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Review By Dilip Davda on February 3, 2024

•    RPL is one of the leading ICT product distributor in India.
•    It did well for FY21 and FY22 due to surge in demand of products.
•    For FY23, though it marked higher top line, it posted lower bottom lines due to reduced margins after vanning out of Pandemic euphoria.
•    Its H1-FY24 performance indicates restoration of trends and the management is confident of maintaining the earning trends.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Investors may apply for medium to long term rewards. 

ABOUT COMPANY:
Rashi Peripherals Ltd. (RPL) was incorporated in 1989 and have more than 34 years of experience in distribution of ICT products in India. The Company commenced operations with manufacturing of peripherals. With the liberalization of the Indian IT sector in 1991 (Source: Technopak Report), It transitioned to distribution of ICT products of global technology brands in India. RPL has been instrumental in facilitating the entry of a number of global technology brands and were among the select players that led the formalization of the fragmented and unorganized ICT products distribution in India. (Source: Technopak Report) Over the years, it has continually expanded operations and between Fiscal 2002 and the six months ended September 30, 2023, the Company distributed 311.89 million units (including shortages of certain items, and items given free, if any) of ICT products. It has expanded distribution network across India and as of September 30, 2023, had one of the largest ICT products distribution networks in India. (Source: Technopak Report)

RPL is among the leading national distribution partners for global technology brands in India for information and communications technology ("ICT") products in terms of revenues and distribution network in Fiscal 2023. (Source: Technopak Report). It is also one of the fastest growing national distribution partners for global technology brands in India in terms of revenue growth between Fiscal 2021 and Fiscal 2023. (Source: Technopak Report). RPL's revenue from operations grew at a CAGR of 26.32% from Rs. 5925.05 cr. in Fiscal 2021 to Rs. 9454.28 cr. in Fiscal 2023 and were Rs. 5468.51 cr. in the six months ended September 30, 2023. The company differentiates itself by offering end-to-end services such as pre-sale activities, solutions design, technical support, marketing services, credit solutions and warranty management services.

Its Pan-India distribution network comprises 50 branches that operate for sales and as service centers and 63 warehouses, as of September 30, 2023. Through its branches and warehouses, the company was able to cover 680 locations in India, as of September 30, 2023. As of the said date, it had an ecosystem of 8402 customers. RPL had 45 global technology brands in FY21, that increased to 53 in FY23 and was 52 for the period ended September 30, 2023. It has relationship of over 11 years with around a dozen global technology brands with their average contribution of around 79% in its revenues.

India has a large addressable market for the personal computing segment including peripherals, storage, tablet PCs, mobile phone and accessories, cloud services, and server businesses. The market was approximately Rs. 4589 billion in 2022, which is projected to grow to approximately Rs. 7337 billion by 2026. (Source: Technopak Report).

During Pandemic period, the company did well amidst shortages of IT products and huge demand leading to higher margins following online learning, work from home and changed lifestyle. However, as the things are back to normal, it posted lower margins for FY23, but with restoration of demands, it is poised for bright prospects as indicated by H1 of FY24 performance. As of September 30, 2023, it had 1433 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO worth Rs. 600 cr. (approx.  19292592 shares at the upper cap) by way of primary issue. It has announced a price band of Rs. 295 - Rs. 311 per share of Rs. 5 each. The issue opens for subscription on February 07, 2024, and will close on February 09, 2024. The minimum application to be made is for 48 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 29.28% of the post-IPO paid-up capital of the company. From the net proceeds of the issue funds, it will utilize Rs. 326 cr. for repayment/prepayment of certain borrowings, Rs. 220 cr. for working capital, and the rest for general corporate purposes. The company did a pre-IPO placement worth Rs. 150 cr. in January 2024  

The joint Book Running Lead Managers (BRLMs) to this issue are JM Financial Ltd. and ICICI Securities Ltd., while Link Intime India Pvt. Ltd. is the registrar of the issue.

Having issued initial equity shares at par value, the company issued further equity capital in the price range of Rs. 15 - Rs. 750 between March 1997 and January 2024. It has also issued bonus shares in the ratio of 1 for 1 February 1997, 4 for 1 in March 2000, 20 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. NIL, Rs. 0.39, Rs. 0.48 and Rs. 1.89 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 23.30 cr. will stand enhanced to Rs. 32.95 cr. Based on the upper band of the IPO price, the company is looking for a market cap of Rs. 2049.48 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 5931.74 cr. /Rs. 136.35 cr. (FY21), Rs. 9321.92 cr. / Rs. 182.51 cr. (FY22), and Rs. 9468.95 cr. / Rs. 123.34 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 72.02 cr. on a total income of Rs. 5473.27 cr.

For the last three fiscals, the company has reported an average EPS of Rs. 34.47 and an average RoNW of 24.87%. The issue is priced at a P/BV of 1.68 based on its NAV of Rs. 184.94 as of September 30, 2023, and at a P/BV of 1.35 based on its post-IPO NAV of Rs. 231.07 per share (at the upper cap). 

If we attribute annualized FY24 earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 14.23. Thus the issue appears fully priced. However, according to management, since they are reducing its debt and additional working capital will help them to more than double the top line in coming few years, with commensurate surge in its bottom line. Though the company is operating in a "high volume/low margin" segment, it is heading for bright prospects amidst government's initiatives of Digital India and Atmanirbhar Bharat. 

For the reported periods, the company has reported PAT margins of 2.30% (FY21), 1.96% (FY22), 1.30% (FY23), 1.32% (H1-FY24), and RoCE margins of 23.46%, 20.13%, 14.21%, 7.22% respectively for the referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 10% for the last three fiscals, and has already adopted a dividend policy in September 2022 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Redington India as their listed peer. It is trading at a P/E of 11.9 (as of February 02, 2024). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 82 public issues in the past three fiscals, out of which 21 issues closed below the offer price on listing date.

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