ACE Alpha BSE SME IPO review (Avoid)

•    The company is engaged in offering customised trading solutions for financial industry.
•    It marked growth in its top and bottom lines for the reported periods.
•    The sudden announcement of price band reduction and lot change has raised concern over its transparency.
•    Based on revised reduced price of IPO, the issue appears fully priced.
•    There is no harm in skipping this non-transparent company lacking compliances.

PREFACE:
Aho Ashcharyam!!! The company that planned its IPO for this week and announced a price band of Rs. 101 – Rs. 107 per share to mobilize Rs. 49.97 (4670400 shares) cr. has surprised one and all with reduced price band to Rs. 65 – Rs. 69 per share (4670000 shares) for mobilizing Rs. 32.22 cr.  As per the market information, the reduction in its price is at the behest of bunch of investors. But then the same bunch of investors was happy with the earlier higher price as well. This is setting a bad example of market mockery. Its high time to check valuations of SME IPOs that have been a centre of critics and has attracted attention of one and all. Perhaps, we might see a sudden action from watch dog body on this aspect. Looking at the company’s financial data, it appears to have fabricated to match the asking price. But with reduced price, and no change in the superb earnings has marked a roller-coaster ride in valuations. Should investors go for these gimmicks is a real test now. Its market lot also stands revised to 2000 shares, up from 1200 shares earlier. Based on revised price band, its market cap also stands reduced to Rs. 121.15 cr. against Rs. 187.88 cr. as per earlier price band. All these matter raises alarm over its transparency and compliances matter at the first place. Though the issue turned from the pricey bet to fully priced with the reduction in the price band announce, it lacks confidence of investors. Why to invest in such companies?

ABOUT COMPANY:
ACE Alpha Tech Ltd. (AATL) is serving financial industry with our comprehensive suite of trading solutions catering to all types of clients, ranging from institutional investors to retail traders via brokers. Our institutional-grade trading strategies on existing setup, sophisticated integration with order management systems of prop desks, and consultancy for direct market access capabilities ensure seamless and efficient trading experiences for clients, minimizing risk exposure and optimizing execution practices.

It provides customized trading solutions in which it uses advanced, institutional-grade algorithms that work as a front-end layer over existing order management systems/ RMS which are connected with stock exchanges. AATL’s solutions also enable clients to work on simulated environment of their own platform for back testing their solutions. These customized solutions enable clients to execute their trading strategies automatically and without manual intervention, offering enhanced efficiency and performance, backed by robust risk management tools. Since these strategies are back tested and checked on simulated environment, they ensure the safety and smooth operation of trading activities. Company’s user management and risk management system further streamlines operations, automating processes like user onboarding, access management, and ongoing risk monitoring. This comprehensive approach not only enhances operational efficiency but also ensures security and compliance across businesses of all sizes.

Additionally, its trading solution caters to high-volume traders, offering advanced electronic trading solutions, low-risk strategies, and organized management tools. With algorithmic trading capabilities, risk management features, and comprehensive market analysis tools, its Proprietary Trading System empowers traders to execute trades efficiently and optimize their strategies for maximum returns on their current setup. Coupled with custom trading solutions tailored to specific business requirements and market coverage across various sectors, the company provides clients with scalable and adaptable solutions that drive success in the dynamic financial landscape. It provides various solutions to clients including set up for institutional trading, B2B Retail Trading, User Management, Proprietary Trading solutions and custom trading. Along with this, AATL ensures the redressal of client issues its support system and provide end to end solutions. As of June 04, 2025, it had 26 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4670400 equity shares to mobilize Rs. 32.23 cr. at the upper cap. The IPO constitutes of 3548400 shares (worth Rs. 24.49 cr. at the upper cap) and an Offer for Sale (OFS) of 1122000 shares (worth Rs. 7.74 cr. at the upper cap). The company has announced a price band of Rs. 65 – Rs. 69 per share of Rs. 10 each. The issue opens for subscription on June 26, 2025, and will close on June 30, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.60% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity shares, the company will utilize Rs. 12.50 cr. for capex, and the rest for general corporate purposes and unidentified acquisitions. Clarity is missing and there appears to be non-transparency and non-compliance.

The IPO is solely lead managed by Narnolia Financial Services Ltd., and Skyline Financial Services Pvt. Ltd., is the registrar to the issue. SS Corporate Securities Ltd. is the market maker. The issue is underwritten to the tune of 15.01% by Narnolia Financial and 84.99% by Share India Capital Services Pvt. Ltd.

The company has issued/converted initial equity shares at par value. It has issued further equity capital in the price range of Rs. 1687.94 – Rs. 118310.00 per share between May 2023, and March 2024. It has also issued bonus shares in the ratio of 1296 for 1 in April 2024.The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 2.31, and Rs. 39.68 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 14.01 cr. will stand enhanced to Rs. 17.56 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 121.15 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 0.36 cr. / Rs. 0.14 cr. (FY22), Rs. 4.94 cr. / Rs. 3.32 cr. (FY23), Rs. 15.35 cr. / Rs. 10.65 cr. (FY24). For 9M of FY25 ended on December 31, 2024, it earned a net profit of Rs. 8.47 cr. on a total income of Rs. 12.71 cr. It posted growth in its top and bottom lines for the last three fiscals. Boosted net profits from FY24 onwards raise eyebrows and concern over its sustainability going forward. 

For the last three fiscals, the company has reported an average EPS of Rs. 2.23 and an average RoNW of 52.53%. The issue is priced at a P/BV of 3.16 based on its NAV of Rs. 21.82 as of December 31, 2024, but its post-IPO NAV data is missing from the documents. The company is operating in a highly competitive and fragmented segment.

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 10.73. Based on FY24 earnings, the P/E stands at 11.37. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 42.0% (FY22), 67.92% (FY23), 71.64%, (FY24), 73.36% (9M-FY25), but RoCE margin data is missing from offer documents.

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown 63 Moons as their listed peers. It is trading at a P/E of NA (as of June 23, 2025). However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 17th mandate from Narnolia Financial in the last three fiscals, including the ongoing one.  From the last 10 listings, 3 opened at discount, and the rest with a premium ranging from 2.60% to 110.36% on the listing date.