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Safa Systems BSE SME IPO review (Avoid)

Review By Dilip Davda on Jan 22, 2022

•    SSTL is engaged in distributorship of consumer durables and electronics goods.
•    It is operating in a highly competitive and fragmented segment. 
•    Its financial performance is not up to the mark.
•    The issue is highly-priced despite being offered at par. 
•    There is no harm in ignoring this IPO. 

ABOUT COMPANY:
Safa Systems & Technologies Ltd. (SSTL) is in the business of distributorship of consumer durable products like Mobile phones, Mobile phone accessories, Tablets, LED TVs, Home appliances and wearable devices of various brands like Xiaomi, OPPO, TECNO, Micromax, One Plus in Kerala. The company works in B2B (Business to Business) model. After starting as a single brand distributor it expanded its brand portfolio and increase the range. 

The Company is one of the key distributors of Electronic Products and accessories in Kerala. Presently the Company has its distributorship agreement with reputed Brands like Xiaomi, OPPO, TECNO, Micromax, One Plus for distribution of Smartphones, LED TV and accessories in the State of Kerala.

As of the date of filing this offer document, it had 26 employees on its payroll. The company operates from its registered office and a branch office recently acquired and under development. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.21 cr.), general corporate purpose (Rs. 0.30 cr.), SSTL is coming out with a maiden IPO of 4000000 equity shares of Rs. 10 each at par to mobilize Rs. 4.00 cr. The issue opens for subscription on January 28, 2022, and will close on February 01, 2022. The minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE SME. The issue constitutes 26.53% of the post issue paid-up capital of the company. SSTL will spend around Rs. 0.49 cr. for this IPO process. This indicates the structured format of the IPO. 

The issue is solely lead managed by Finshore Management Services Ltd. and Cameo Corporate Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is acting as a market maker for this company. 

SSTL has issued its entire equity capital at par so far. The average cost of acquisition of shares by the promoters is Rs. 10 per share. 

Post-IPO, SSTL's current paid-up equity capital of Rs. 11.08 cr. will stand enhanced to Rs. 15.08 cr. Based on IPO pricing, the company is looking for a market cap of Rs. 15.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SSTL has posted turnover/net profits of Rs. 255.74 cr. / Rs. 0.36 cr. (FY19), Rs. 255.23 cr. / Rs. 0.31 cr. (FY20), and Rs. 208.66 cr. / Rs. 0.29 cr., (FY21). For the first 190 days of FY22 ended on October 07, 2021, it has earned a net profit of Rs. 0.27 cr. on a turnover of Rs. 145.19 cr.  

For the last three fiscals, SSTL has posted an average EPS of Rs. NA and an average RoNW of 3.70%. The issue is priced at a P/BV of 1 based on its NAV of Rs. 10 as of October 07, 2021, as well as post IPO basis. 

If we annualize FY22 earnings and attribute it on post IPO fully diluted equity, then the asking price is at a P/E of 29.41 making it a highly-priced issue despite being offered at par. 

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

DIVIDEND POLICY:
The company has not declared any dividend for the reported period of offer documents. 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 21st mandate from Finshore Management in the last four fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount and the rest with premiums ranging from 1.90% to 60.78% on the day of listings. Timescan was the exceptional case of fancy premium listing (around 61%) so far. 


Conclusion / Investment Strategy

SSTL’s financial performance so far is not up to the mark and making this at par offer a costly bet. Based on its financial data so far and the fragmented segment with cutthroat competition makes it a risky bet even at par. There is no harm in ignoring this at par issue.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Jan 22, 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

Safa Systems IPO FAQs

  1. 1. Why Safa Systems IPO?

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

  2. 2. How is Safa Systems IPO?

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

  3. 3. Safa Systems IPO what should investors do?

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

  4. 4. Is Safa Systems IPO good?

    Our recommendation for Safa Systems IPO is to avoid.

  5. 5. Is Safa Systems IPO worth Investing?

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

  6. 6. When will Safa Systems IPO allotment status?

    The Safa Systems IPO allotment status will be available on or around Feb 4, 2022. The allotted shares will be credited in demat account by Feb 8, 2022. Visit Safa Systems IPO allotment status to check.

  7. 7. When will Safa Systems IPO list?

    The Safa Systems IPO will list on Wednesday, February 9, 2022, at BSE SME.