Arham Techno NSE SME IPO review (May apply)

•    ATL is engaged in the manufacturing and marketing of white goods.
•    It is operating in a highly competitive and fragmented segment.
•    The sustainability of the margins going forward raises concern.
•    Based on its financial performance so far, the issue is fully priced. 
•    Well-informed, cash surplus risk seekers may park funds. 

ABOUT COMPANY:
Arham Technologies Ltd. (ATL) is engaged in manufacturing LED Smart Televisions, with different screen sizes under its own brand 'STARSHINE'. It also manufactures Fans, Air Coolers, and Mixer Grinders through third-party manufacturers under the 'STARSHINE' brand. ATL has a network of dealers and distributors across Chhattisgarh, Madhya Pradesh, Odisha, Vidarbha, Andhra Pradesh, and parts of Uttar Pradesh.

ATL also serves under Original Equipment Manufacturer ("OEM") business models for LED Televisions. Under the OEM model, it manufactures and supplies products as per the requirements of customers, who then further distribute these products under their own brands. With a primary focus on quality, ATL has been catering to a number of regional brands in Central India. With serving Original Equipment Manufacturers (OEM), it has adopted a cost-effective pricing strategy that gives the clients an upper hand over other brands.

The company plans to add other products to its portfolio by way of white labelling, to be a part of a bigger portfolio of products. However, ATL plans to keep the focus on sales of Smart Televisions by making schemes and offers centric on Televisions. It is also setting up a manufacturing facility for Fans at existing locations which shall give better margin and control in the supply chain, as the company does not have to depend on other manufacturers for procurement.

It also does white labelling for various regional brands. The company has also launched its "D2C" website www.starshine.co.in for products that will increase sales, profits, and brand value and also to provide direct benefit to the end users. It is also listing products on e-commerce platforms i.e. Amazon and Flipkart etc. As of the date of filing this offer document, it has 45 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 8.34 cr.), and general corporate purposes (Rs. 0.75 cr.), ATL is coming out with a maiden IPO of 2280000 equity shares of Rs. 10 each at a fixed price of Rs. 42 per share to mobilize Rs. 9.58 cr. The issue opens for subscription on December 05, 2022, and will close on December 07, 2022. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.95% of the post-issue paid-up capital of the company. ATL is spending Rs. 0.49 cr. for this IPO process.

Finshore Management Services Ltd. is the sole lead manager for this IPO, while Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for this company. 

The company has issued the entire equity capital at par so far and has also issued bonus shares in the ratio of 2 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 3.33 per share. 

Post-IPO, ATL's current paid-up equity capital of Rs. 6.18 cr. will stand enhanced to Rs. 8.46 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 35.53 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ATL has posted turnover/net profits of Rs. 13.79 cr. / Rs. 0.57 cr. (FY20), Rs. 22.80 cr. / Rs. 2.04 cr. (FY21), and Rs. 37.27 cr. / Rs. 3.02 cr. (FY22). It earned a net profit of Rs. 1.28 cr. on a turnover of Rs. 21.40 cr. for H1 of FY23. Sustaining the margins going forward is a major concern.

For the last three fiscals, ATL has reported an average EPS of Rs. 3.69 and an average RoNW of 42.21%. The issue is priced at a P/BV of 3.08 based on its NAV of Rs. 13.62 as of September 30, 2022, and at a P/BV of 1.98 based on its post-IPO NAV of Rs. 21.27 per share. 

If we annualize FY23 earnings and attribute it to the post-IPO fully diluted equity capital, then the asking price is at a P/E of around 13.82. Thus based on its financial track records so far, the issue appears fully priced. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects.

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

MERCHANT BANKER'S TRACK RECORD:
This is the 32nd mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 2 at par, and the rest with premiums ranging from 0.91% to 150% on the day of listing.