3C IT Solutions BSE SME IPO review (Avoid)

•    The company is engaged in providing IT system integration solutions.
•    It posted inconsistency in its top and bottom lines for the reported periods. 
•    The company is operating in a highly competitive and fragmented segment. 
•    Based on FY24 annualized earnings, the issue appears aggressively priced. 
•    There is no harm in skipping this risky bet. 

PREFACE:
The company made IPO announcement and its prospectus is bearing filing date as May 25, 2024. However, its final offer document was not available on the designated exchange till the noon of Sunday i.e. June 02, 2024. What is more, the info of IPO premium was mismatch on BSE Web. The company is issuing equity share of Rs. 5 each at a fixed price of Rs. 52 i.e. with a premium of Rs. 47 per share, but the BSE Web indicated a premium of Rs. 42 per share. This kind of compliances are really raising eyebrows as no regulatory action is seen despite whistle blowing. 

ABOUT COMPANY:
3C IT Solutions & Telecoms (India) Ltd. (3C IT) is an established IT systems integration company operating for the past 8 years as claimed by the company. IT System integration, as the name suggests, combines all company's IT systems (technology, applications, and software) into one system common to all of them. Integration of IT systems is a comprehensive service that includes identifying the client's business needs, designing solutions, and implementing them in a company.

The company specialize in end-to-end IT integration solutions covering Power Management to Data Centers and everything in between. It offers outstanding system integration services through highly-valued partnerships and proven expertise. System integration is not merely a technical process and has a strong impact on the core business as well as its people. For a holistic and seamless expansion of the current IT setup, 3C IT works with client organizations in evaluating the existing systems, locating the problems and finally building a system integration solution that is futuristic, cost-efficient and the best in performance.

The Company operates with a vision to provide competitive IT system integration capabilities endeavoring to use best-in-class technologies and hence bring significant value to the stakeholders. It aims to create a well-respected, highly skilled, and professional workforce that can serve the diverse technology needs of the businesses as its service portfolio comprises several IT-related services which cater to the needs of customers.

At 3C IT, the company offers optimized solutions for the consolidation of servers and eliminate business backlogs such as traffic surges, connectivity issues, increased downtime and high overhead costs. By utilizing its complete range of deployment monitoring tools and support services for server consolidation, organizations, can benefit from an enhanced level of application delivery performance.

Its offerings address the IT infrastructure, and IT portfolio requirements of customers. The Company provides customized IT solutions to various sectors such as pharmaceutical, education, banking, manufacturing, and healthcare. As of March 31, 2024, it had 25 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 2200000 equity shares of Rs. 5 each at a fixed price of Rs. 52 per share to mobilize Rs. 11.44 cr. The issue consists of 1700000 fresh equity shres worth Rs. 8.84 cr. and an offer for sale (OFS) of 500000 shares worth Rs. 2.60 cr. The issue opens for subscription on June 04, 2024, and will close on June 07, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 36.54% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.34 cr. for fresh equity share issue (overall Rs. 0.44 cr. for the entire IPO process), and from the net proceeds, it will utilize Rs. 3.86 cr. for working capital, Rs. 2.43 cr. for repayment/prepayment of certain borrowings, and Rs. 2.21 cr. for general corporate purposes. 

The issue is solely lead managed by Kreo Capital Pvt. Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Ltd. is the market maker for the company. 

The company has issued entire equity capital at par value so far, and has also issued bonus shares in the ratio of 5 for 1 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. Negligible, and Rs. 9.58 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.16 cr. will stand enhanced to Rs. 3.01 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 40.64 cr. / Rs. 0.86 cr. (FY21), Rs. 66.94 cr. / Rs. 1.11 cr. (FY22), and Rs. 62.93 cr. / Rs. 1.14 cr. (FY23). For the 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 0.51 cr. on a total income of Rs. 23.56 cr. Thus it marked degrowth in its top lines and sharp decline in its bottom line for 9M-FY24. 

For the last three fiscals, it has reported an average EPS of Rs. 47.18, and an average RoNW of 37.61%. The issue is priced at a P/BV of 4.88 based on its NAV of Rs. 10.65 as of December 31, 2023, and at a P/BV of 2.33 based on its post-IPO NAV of Rs. 22.33 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 46.43. Thus the issue appears aggressively priced. 

The offer document is missing Key Performance Index (KPI) for the company. However, for the reported periods, the company has posted PAT margins of 2.11% (FY21), 1.66% (FY22), 1.83% (FY23), 2.17% (9M-FY24), and RoCE margins data is not available. 

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 Dev Information as their listed peers. It is trading at a P/E of 27.6 (as of May 31, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 1st mandate from Kreo Capital in the last three fiscals (including the ongoing one), and has no recent past track record.