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SBL Infratech BSE SME IPO review (Avoid)

Review By Dilip Davda on Sep 13, 2021

•    SBLIL is engaged in the realty sector as an estate broker cum developer.
•    It has non-impressive minuscule financial performance so far.
•    It is operating in a highly competitive and fragmented market. 
•    It has done jugglery on its face value of shares during FY20 - FY22.
•    The issue is exorbitantly priced based on its financial data. 
•    There is no harm in ignoring this highly-priced issue. 

PREFACE:
As per the first ad for the announcement of its IPO, SBLIL indicated a price of Rs. 210 per share for 213600 shares of Rs. 10 each to mobilize Rs. 4.49 cr. on August 14, 2021, and it withdrew this plan soon thereafter and postponed the issue till further notice. At that time the issue was scheduled between August 18, 2021, to August 23, 2021. Now the company is coming with the same number of shares but at a price of Rs. 111 per share to mobilize Rs. 2.37 cr. Thus while the number of shares to be issued remains the same, but the price is nearly halved. This shows something fishy for this IPO. The company did some jugglery for its face value following sub-division and consolidation in March 2020 and June 2021 and the final equity as of 18 June 2021 following consolidation was Rs. 0.57 cr. whereas for March 31, 2021, it was Rs. 0.60 cr. Thus how some shares vanished during consolidation remains a million-dollar question. (see page 50 of the prospectus). The reason for the drastic changed in the IPO pricing is better known to the lead manager and promoters of the company. Vested interest game post listing on this fully managed IPO is not ruled out.

ABOUT COMPANY:
SBL Infratech Ltd. (SIL) primarily started as a real estate brokerage firm. Thereafter it ventured into selling plots of land and affordable housing development projects. 

As on the filing of this offer documents, it had a total 3 full-time employees on its roll and few marketing agents on the commission basis. It has made tall claims about its work quality, execution of projects and future prospects despite being in a highly competitive and fragmented marketplace. It has not taken any type of insurance for its business. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for working capital (Rs. 1.30 cr.), general corpus fund needs (Rs. 0.55 cr.) SIL is coming out with a maiden issue of 213600 equity shares of Rs. 10 each at a fixed price of Rs. 111 per share to mobilize Rs. 2.37 crores. The issue opens for subscription on September 16, 2021, and will close on September 20, 2021. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post issue paid-up capital of the company. SIL will spend Rs. 0.52 cr. for this IPO process. This indicates a fully structured funding arrangement process for this issue. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Pvt. Ltd. will be the market maker for this issue. 

Having issued initial equity at par. SBLIL issued further equity at a price of Rs. 510 per share (on the basis of Rs. 10 FV) in August 2020. It has also issued bonus shares in the ratio of 4.9 to 1 in February 2020. The average cost of acquisition of shares by the promoters is Rs. NIL and Rs. 0.01 per share. 

Post issue, company's current paid-up equity capital of Rs. 0.60 cr. to Rs. 0.81 cr. (811270 shares) post this issue. At the issue price, the company is looking for a market cap of Rs. 9 cr. 


FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, SBLIL has posted turnover/net profits of Rs.  0.19 cr. / Rs. 0.002 cr. (FY18), Rs. 0.20 cr. / Rs. 0.004 cr. (FY19), Rs. 1.49 cr. / Rs. 0.11 cr. (FY20) and Rs. 0.40 cr. / Rs. 0.02 cr. (FY21). Super performance for FY20 raised eyebrows and is a major concern as well. 

For the last three fiscals, SBLIL has reported an average EPS of Rs. 0.11 and an average RoNW of 54.27% (really surprising data). The issue is priced at a P/BV of 4.38 based on its NAV of Rs. 25.33 per share (of Rs. 10 FV) as of March 31, 2021. (Thanks to the rights issue at Rs. 510 per share that boosted its reserves), and at a P/BV of 1.50 based on its NAV of Rs. 73.93. (following premium collected on IPO). 

If we attribute FY21 earnings on fully diluted post IPO equity, then the asking price is at a P/E of 528 making it an exorbitantly priced issue. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown Maruti Infra and Sanmit Infra as its listed peers. They are currently trading at a P/E of 46.35 and 64.89 (as of September 14, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
The company has no formal dividend policy in place and has not paid any dividend so far. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

MARCHANT BANKER'S TRACK RECORDS:
On the one hand, Annexure A is missing from the offer documents and on the other, the Lead Manager's website is not updated and is not showing its track records as of the date of writing this review. (i.e. September 14, 2021, at 10.15 hrs.). 

However, as per the data available on our website, this is the 5th mandate from Fast Track in the last four fiscals (including the ongoing one) and out of the last 4 listings, two opened at discount and the rest with premiums ranging from 0.83% to 8.85%. Thus It has a poor track record.


Conclusion / Investment Strategy

A company with lacklustre financial data operating in a highly competitive and fragmented market. Its issue announcement itself lacked on transparency on the IPO pricing part. Please refer to Preface for this aspect. Based on its financial data and other parameters, the issue is exorbitantly priced. Just avoid this issue as it will have just Rs. 0.81 cr. paid up equity post IPO, indicating at pretty long duration for migration to mainboard.

Reviewer recommends Avoid to the issue.

Review By Dilip Davda on Sep 13, 2021

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

SBL Infratech Limited IPO FAQs

  1. 1. Why SBL Infratech Limited IPO?

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

  2. 2. How is SBL Infratech Limited IPO?

    Read the SBL Infratech Limited IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. SBL Infratech Limited IPO what should investors do?

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

  4. 4. Is SBL Infratech Limited IPO good?

    Our recommendation for SBL Infratech Limited IPO is to avoid.

  5. 5. Is SBL Infratech Limited IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the SBL Infratech Limited IPO.

  6. 6. When will SBL Infratech Limited IPO allotment status?

    The SBL Infratech Limited IPO allotment status will be available on or around [.]. The allotted shares will be credited in demat account by [.]. Visit SBL Infratech Limited IPO allotment status to check.

  7. 7. When will SBL Infratech Limited IPO list?

    The SBL Infratech Limited IPO will list on Tuesday, September 28, 2021, at BSE SME.