C2C Advanced NSE SME IPO review (Apply)

•    The company is engaged in providing digital transformation system and services and has a niche place among the user industry globally.
•    Its top line has over 90% exports earnings and the rest from domestic markets.
•    It marked speedy growth in its top and bottom lines from FY24 onwards due to good response from the markets for its products.
•    The management is confident of repeating its performance post completion of expansion plans. 
•    The company earns higher margins due to specialized tailor made products and related services offerings.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term. 

ABOUT COMPANY:
C2C Advanced Systems Ltd. (CASL) is engaged in the business of providing digital transformation systems and services that are centre around virtual supply chain, virtual logistics, virtual maintenance, and application of AI/ML technologies across all its offerings with a focus on intelligent platform. C2C Advanced Systems Limited is a vertically integrated Defence electronics solutions provider catering to the indigenously developed defence products industry in India. It specializes in delivering customized software and software enabled systems that control mission critical defence applications for military and security apparatus in India and globally.

It has a technological advantage over existing competitors, as reflected in its higher margins and globally competitive offerings. CASL's Intelligent platforms enable the operationalization and provide data analytics to ensure efficient situational awareness and command and control. Its in-house architecture, engineering and design of the entire stack software makes it a unique company in the market place.

The company draws its passion and strength from a deep and abiding commitment towards making India a leading player in the domain of cutting edge technologies systems for defence, security and aerospace sectors. The need to partner with global players is the most urgent need to accelerate innovations.

According to the management, though the company is specializing in critical product developments, its approval, testing and payment cycle results in over 150 days on an average per order and thus, it's a capital intensive segment. However, it enjoys higher margins due to its specialization in tailor made products/projects and with the ongoing expansion, it hopes to do much better in numbers going forwards as it is a good pipeline of critical products order/services. Its revenue included over 90% export income and the rest from domestic markets. As of October 30, 2024, it had 190 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4383600 equity shares of Rs. 10 each to mobilize Rs. 99.07 cr. (at the upper cap). The company has announced a price band of Rs. 214 - Rs. 226 per share. The issue opens for subscription on November 22, 2024, and will close on November 26, 2024. The minimum number of shares to be applied is for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 14.73 cr. for purchase of fixed assets, Rs. 4.58 cr. for fit-outs at new premises, Rs. 1.60 cr. for security deposits for new premises at Bengaluru and Dubai, Rs. 46.00 cr. for working capital, and the rest for general corporate purposes. 

The IPO is jointly lead managed by Mark Corporate Advisors Pvt. Ltd. and Beeline Capital Advisors Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. Beeline Group's Spread X Securities Pvt. Ltd. is the Market Maker for the company. Spread X Securities Pvt. Ltd. is the syndicate member for the issue. The issue is under written to the tune of 15% by Mark Corporate and 85% by Beeline Capital.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 17.00 - Rs. 160.00 per share between September 2023, and March 2024. It has also issued bonus shares in the ratio of 3 for 1 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, Rs. 2.00, Rs. 2.53, Rs. 76.80, Rs. 159.92, and Rs. 167.52 per share. 

Between June 2024 to November 2024, internal share transfers to third party took place in the price range of Rs. 210.00 to Rs. 450.00 per share (Refer page no. 87 and 88 of the offer document.

Post-IPO, company's current paid-up equity capital of Rs. 12.26 cr. will stand enhanced to Rs. 16.64 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 376.09 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 0.35 cr. / Rs. - (2.38) cr. (FY22), Rs. 8.07 cr. / Rs. 2.88 cr. (FY23), and Rs. 41.30 cr. / Rs. 12.40 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 9.73 cr. on a total income of Rs. 43.25 cr. The company posted bumper growth in its top and bottom lines from FY24 onwards.

For the last three fiscals, the company has reported an average EPS of Rs. 10.70 and an average RoNW of 46.12%. The issue is priced at a P/BV of 3.21 based on its NAV of Rs. 70.31 as of September 30, 2024, and at P/BV of 2.14 based on its post-IPO NAV of Rs. 105.48 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 19.33, and based on FY24 earnings, the P/E stands at 30.33. The issue appears fully priced. 

For the reported periods, the company has posted PAT margins of - (686.68) % (FY22), 35.72 % (FY23), 29.90% (FY24), 22.51% (H1-FY25), but RoCE margins data is missing from offer document.

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. 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 Paras Defence, as its listed peers. It is trading at a P/E of 93.5 (as of November 14, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The two merchant bankers associated with this issue have handled 37 IPOs in the last three fiscals, out of which 4 issued closed below the issue price on listing date.