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Varanium Cloud NSE SME IPO review (May apply)

Review By Dilip Davda on Sep 12, 2022

•    VCL claims to be a fast-growing Indian Technology company. 
•    From a loss for FY20 to bumper profits in FY22 raises eyebrows.
•    Based on its financial performance so far, the issue is fully priced. 
•    It operates in a highly competitive segment with many big players.
•    Well-informed/risk seeker may consider investment for the medium to long term. 

ABOUT COMPANY:
Varanium Cloud Ltd. (VCL) is a fast-growing Indian technology company that is focused on providing services surrounding digital audio, video, and financial blockchain (for PayFac) based streaming services. The Company operates in the following key verticals:

o    Provision of digital audio and video content streaming services to various content owners and telecom operators in India and internationally on a SaaS (Software As A Service) model such as Voice & Video over Internet Protocol solutions (VoIP) in the B2B and B2C segments;
o    Online payment facilitation services (PayFac);
o    Provision of low bandwidth digital education content platforms (EdTech) with complete Learning Management Systems (LMS) focused on non-urban areas under Edmission brand;
o    Provision of information technology-related services to start-ups and SMEs to help them transition their business to digital platforms and manage the relevant infrastructure on an IaaS (Infrastructure As A Service) model;

As of June 30, 2022, it had 19 employees on its payroll. 

VCL operates in a competitive market and competition is based primarily on the quality of service, and pricing of such products and services. To remain competitive in the market it strives to improve design capability, reduce procurement costs and improve operating efficiencies.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for setting up of 3 nos. of Containerized Edge Data Centres Rs. 23.40 cr.), the rollout of three Edmission Flagship Digital Learning Centres (Rs. 8.40 cr.), and general corporate purposes (Rs. 8.59 cr., VCL is coming out with a maiden IPO of 3000000 equity shares of Rs. 10 each at a fixed price of Rs. 122 per share to mobilize Rs. 36.60 cr. The issue opens for subscription on September 16, 2022, and will close on September 20, 2022. The minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.85% of the post-issue paid-up capital of the company. VCL is spending Rs. 3.14 cr. for this IPO indicating a structured process.  

The company has already raised Rs. 6.93 cr. through pre-IPO placement between July 2022 to September 2022, at a price of Rs. 99 per share. Surprisingly, it has reserved 486000 shares (i.e. 16.2%) for the market maker. 

The issue is solely lead managed by First Overseas Capital Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd. is the market maker and has underwritten 83.33% of the issue. 

Having issued/converted initial equity shares at par, the company issued further equity shares under pre-IPO placement at Rs. 99 per share between July 2022, to September 2022.  The average cost of acquisition of shares by the promoters is Rs. 10.00 per share. 

Post this issue, VCL's current paid-up equity capital of Rs. 7.05 cr. will stand enhanced to Rs. 10.05 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 122.63 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has reported turnover/net profits - (loss) of Rs. 0.12 cr. / Rs. - (1.49) cr. (FY20), Rs. 4.20 cr. / Rs. 2.89 cr. (FY21), and Rs. 35.35 cr. / Rs. 8.40 cr. (FY22). The sudden boost in its working for FY22 raises eyebrows. 

For the last three fiscals, the company has posted an average EPS of Rs. 7.39 and an average RoNW of 28.83%. The issue is priced at a P/BV of 5.12 based on its NAV of Rs. 23.81 as of March 31, 2022, and at a P/BV of 2.04 based on its post-issue NAV of Rs. 59.96 per share. 

If we attribute FY22 earnings to post IPO fully diluted equity base, then the asking price is at a P/E of 14.59, and based on its last three fiscals average EPS P/E stands at 16.51. Thus issue appears fully priced. 

COMPARISON WITH LISTED PEERS:
As per offer documents, VCL has shown Info Edge, Infibeam Avenues, Tanla Platforms, and Route Mobile as its listed peers. They are currently trading at a P/E of 104.07, 53.06, 108.19, and 186.06 (as of September 12, 2022). However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not paid any dividend since its inception. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 9 listings, 1 opened at discount, 3 opened at par and the rest with premiums ranging from 1.40% to 120% on the day of listing.


Conclusion / Investment Strategy

The company incurred a loss in FY20 and marked spectacular top and bottom lines for FY22. This is a bit surprising as it operates in a highly competitive segment with many big players. The sustainability of such margins is a major concern. Surprisingly the market maker has the lion’s share of underwriting and the higher issue expenses go against it. Hence, well-informed/risk seekers may consider investment for the medium to long term.

Review By Dilip Davda on Sep 12, 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

Varanium Cloud IPO FAQs

  1. 1. Why Varanium Cloud IPO?

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

  2. 2. How is Varanium Cloud IPO?

    Read the Varanium Cloud IPO recommendations by the leading analyst and leading stock brokers.

  3. 3. Varanium Cloud IPO what should investors do?

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

  4. 4. Is Varanium Cloud IPO good?

    Our recommendation for Varanium Cloud IPO is to subscribe for long term.

  5. 5. Is Varanium Cloud IPO worth Investing?

    As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to subscribe for long term to the Varanium Cloud IPO.

  6. 6. When will Varanium Cloud IPO allotment status?

    The Varanium Cloud IPO allotment status will be available on or around Sep 23, 2022. The allotted shares will be credited in demat account by Sep 27, 2022. Visit Varanium Cloud IPO allotment status to check.

  7. 7. When will Varanium Cloud IPO list?

    The Varanium Cloud IPO will list on Tuesday, September 27, 2022, at NSE SME.

1 Comments

1. Shilpa   I Like It. | Report Abuse |   Link | Sep 27, 2022 10:38:40 AM Reply
should we boo listing gains or wait ?