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Richa Infosystem NSE SME IPO review (Avoid)

Review By Dilip Davda on Feb 4, 2022

•    RISL is engaged in office automation and multifaceted solutions business.
•    Though the company has posted growth in its top and bottom line, it does not match the asking price. 
•    Based on FY22 annualized earnings, the issue is priced at a P/E of 41+
•    Small equity base post IPO indicates long gestation for migration to the mainboard.
•    There is no harm in ignoring this pricy issue. 

ABOUT COMPANY: 
Richa Info Systems Ltd. (RISL) primarily started with office automation products and is currently engaged in assembling of innovative products and systems Integrator of multifaceted solutions of leading quality products like Interactive Flat Panel, Interactive Board, Digital Podium, Digital Kiosk, CCTV Cameras to esteemed customers in sectors like Government, PSUs, Education, Defense. It provides a wide choice of "Innovative Solutions", providing service to Government organizations across India through Government e-Marketplace (GeM).

The company procures semi-finished goods locally and to some extent, it imports them from China. Such semi-finished goods are then assembled at the company's godown located in Gujarat. However, in order to fulfil the demand of customers on time, RISL sometimes outsources such assembling work to the third party. Such outsourcing is only to cater to high demand and on-time supply. The total ratio of Outsourcing assembling and in-house assembling is 20:80. The company also provides annual maintenance services to its customers. It has a distribution network on a PAN India basis. As of October 31, 2021, it had 24 employees (excluding contract labourers) on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for incremental working capital (Rs. 7.20 cr.) and general corporate purpose (Rs. 2.40 cr.), RISL is coming out with a maiden IPO of 800000 shares of Rs. 10 each at a fixed price of Rs. 125 per share to mobilize Rs. 10.00 cr. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. The issue opens for subscription on February 09, 2022, and will close on February 11, 2022. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 32.88% of the post issue paid-up capital of the company. It will spend Rs. 0.40 cr. for this IPO process. 

The issue is solely lead managed by Swastika Investmart Ltd., and Link Intime India Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company. Beeline Merchant Banking Pvt. Ltd. is the advisor to the issue. 

Having issued initial equity at par, the company issued further equity at a price of Rs. 12 per share in July 2021, and has also issued bonus shares in the ratio of 120 shares for 1 share held in the same month. The average cost of acquisition of shares by the promoters is Rs. 3.15 per share. 

Post-IPO, RISL's current paid-up equity capital of Rs. 1.63 cr. will stand enhanced to Rs. 2.43 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 30.38 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RISL has posted turnover/net profits of Rs. 15.04 cr. / Rs. 0.20 cr. (FY19), Rs. 17.56 cr. / Rs. 0.33 cr. (FY20) and Rs. 20.11 cr. / Rs. 0.72 cr. (FY21). For the first eight months of FY22 ended on November 30, 2021, it has earned a net profit of Rs. 0.49 cr. on a turnover of Rs. 13.97 cr.

For the last three fiscals, RISL has posted an average EPS of Rs. 4.18 and an average RoNW of 51.16%. The issue is priced at a P/BV of 10.80 based on its NAV of Rs. 11.57 as of March 31, 2021, and at a P/BV of 2.53 based on its post-IPO NAV of Rs. 49.40. The company has not given data of its NAV as of November 30, 2021. 

If we annualize FY22 earnings and attribute it to post-IPO fully diluted equity, then the asking price is at a P/E of 41.67. Thus the issue is exorbitantly priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, RISL has no listed peers to compare with. 

DIVIDEND POLICY:
The company has not paid any dividend for the reported periods of Prospectus. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
Swastika Investmart was active in SME IPO prior to FY20 and has shown a track record of 10 IPOs till March 31, 2019. Since then it marked dormancy. Thus in the last three fiscals (including the ongoing one), this is the 1st mandate after a gap of two years. Out of the last 10 listings, 3 issues opened at a discount and the rest with premiums ranging from 1.67% to 20% on the day of listing. 


Conclusion / Investment Strategy

Based on its financial performance, the issue is priced exorbitantly. Post-IPO, its paid-up equity capital will be under Rs. 2.50 cr. indicating longer gestation for mainboard migration. The is no harm in ignoring this pricy issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Feb 4, 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

Richa Info Systems IPO FAQs

  1. 1. Why Richa Info Systems IPO?

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

  2. 2. How is Richa Info Systems IPO?

    Read the Richa Info Systems IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Richa Info Systems IPO what should investors do?

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

  4. 4. Is Richa Info Systems IPO good?

    Our recommendation for Richa Info Systems IPO is to avoid.

  5. 5. Is Richa Info Systems IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Richa Info Systems IPO.

  6. 6. When will Richa Info Systems IPO allotment status?

    The Richa Info Systems IPO allotment status will be available on or around Feb 16, 2022. The allotted shares will be credited in demat account by Feb 17, 2022. Visit Richa Info Systems IPO allotment status to check.

  7. 7. When will Richa Info Systems IPO list?

    The Richa Info Systems IPO will list on Monday, February 21, 2022, at NSE SME.