ROX Hi-Tech NSE SME IPO review (Apply)

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Review By Dilip Davda on November 2, 2023

•    RHL is having niche place as customer centric IT solutions provider.
•    It marked steady growth in its top line, but boosted bottom line from FY23 onwards.
•    Based on annualized FY24 earnings, the issue appears reasonably priced. 
•    The sudden boost in its bottom line in the past 16 months raise concern.
•    Investors may park funds for the medium to long-term rewards.

ABOUT COMPANY:
ROX Hi-tech Ltd. (RHL) is a customer-centric IT solutions provider with a vision to being committed to excellence. With over 22 years of industry experience, the company has evolved from an IBM Business Partner into a prominent player in the IT segment. It offers a comprehensive range of distributed IT solutions, including consulting, enterprise and end-user computing, managed print, and network services. RHL is in the business of providing end to end IT solution provider.

RHL's offerings comprises of: 1. Digital Transformation Solutions (Software services, AI, RPA & ML), 2. Network and Collaboration, 3. IT and OT Security, 4. Data center Solutions (On-premises and Cloud), 5. IoT, SMART and MEDIA, 6. Smart Edge Devices. The company is empaneled as preferred partner with SAP, Cisco, IMB, Google and Lenovo. 

The company can scale upward as per the requirement generated by it. The business scale generation is basically due to the exponential online digital possibilities open to it.  RHL designs, develops, deploys and maintains IT solutions for end user utilities and pre-compiled application stack. Its marque client list includes CAMS, Vestas, BHEL, Murugappa group, Nippon Paints, L & T, Trivitron, etc. As of July 31, 2023, it had 110 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book built IPO of 6564800 shares (worth Rs. 54.49 cr. at the upper cap) consisting of 6017600 fresh equity shares issue (worth Rs. 49.95 cr. at the upper cap) and an Offer for Sale (OFS) of 547200 shares (worth Rs. 4.54 cr. at the upper cap). It has announced a price band of Rs. 80 - Rs. 83 per share of Rs. 10 each. The issue opens for subscription on November 07, 2023, and will close on November 09, 2023. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.75% of the post-IPO paid-up capital of the company.  From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 22.01 cr. for capital expenditure, Rs. 15.00 cr. for working capital, and the rest for general corporate purposes.

The issue is solely lead managed by Swaraj Shares & Securities Pvt. Ltd. and Purva Sharegistry India Pvt. Ltd. is the registrar of the issue. Share India Securities Ltd. is the market maker for the company. 

RHL has issued entire equity shares at par value and has also issued bonus shares in the ratio of 1 for 1 in June 2011, 1 for 2 in March 2017, 1 for 6 in October 2019, 1 for 4 in January 2020, 1 for 5 in March 2020, 1 for 12 in March 2021, 13 for 10 in November 2021, and 8 for 10 in July 2023. The average cost of acquisition of shares by the promoters/selling stake holders is Rs. 0.33, Rs. 0.41, and Rs. 0.59 per share. 

Post-IPO, RHL's current paid-up equity capital of Rs. 16.82 cr. will stand enhanced to Rs. 22.83 cr. Based on the upper price band of the IPO price, the company is looking for a market cap of Rs. 189.52 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, RHL has posted total revenue/net profit of Rs. 65.48 cr. / Rs. 0.66 cr. (FY21), Rs. 102.97 cr. / Rs. 1.51 cr. (FY22), and Rs. 133.99 cr. / Rs. 15.33 cr. (FY23). For the first four months of FY24 ended on July 31, 2023, it earned a net profit of Rs. 6.76 cr. on a total revenue of Rs. 50.01 cr. 

For the last three fiscals, RHL has reported an average EPS of Rs. 4.92, and an average RoNW of 38.97%. The issue is priced at a P/BV of 4.52 based on its NAV of Rs. 18.38 as of July 31, 2023, and at a P/BV of 2.34 based on its post-IPO NAV of Rs. 35.41 per share (at the upper band). 

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 9.35. Thus issue appears reasonably priced. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. 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 Dynacons Syst. as their listed peer. It is trading at a P/E of 19.22 (as of November 02, 2023). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
As per the data given in the offer document, this is the 5th mandate from Swaraj Shares in the current fiscal. The one SME IPO of Shoora Designs opened at a premium of 90% on the day of listing, while two IPOs referred therein, yet to hit the market. It's really surprising that the merchant banker has given details of the IPOs that are approved, but not yet opened or listed. This appears to be the gimmick and an eyewash for investors.

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