CapitalNumbers BSE SME IPO review (May apply)

•    The company is engaged in the business of digital consulting/IT engineering offering all services related to software development.
•    It marked steady growth in its top and bottom lines for the reported periods.
•    It is operating in a highly competitive and fragmented segment, that may pose threat to its margins.
•    Based on recent financial performance, the issue appears fully priced. 
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
CapitalNumbers Infotech Ltd. (CIL) engaged in the business of digital consulting and IT engineering offering end-to-end software development solutions to enterprises, and start-ups worldwide. The company provides services in technological advancement, offering a comprehensive suite of services include Digital Engineering, Data Analytics, Artificial Intelligence/Machine Learning (AI/ML), Cloud Engineering, UI/UX Design and advanced technologies such as Block chain and Augmented Reality/Virtual Reality (AR/VR). The company has more than 500 IT professionals and consultants to serve more than 250 clients worldwide, delivering services from across locations of India. 

It is able to develop a customer-centric focus that aims to fulfil their immediate business requirements and to provide them strategically viable, futuristic and transformative digital solutions. CIL also designs, develops and maintains software systems and solutions, create new applications and enhance the functionality of customer’s existing and new software products. It is conferred with various awards and recognition with Economic Times Best Tech Brands 2024, Times Business Award 2024 – IT Services, Financial Times High-Growth Companies- Asia Pacific 2024 & 2023, Clutch Top 1000 B2B Companies 2024, 2023 & 2022, The Economic Times India’s Growth Champions 2023, Promising Brands 2022, Dun & Bradstreet Leading SMEs of India 2023 & 2022, Manifest Global Awards 2024 & 2023 and G2 Best Software Development Company in 2022. As of September 30, 2024, it had 447 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route combo IPO of 6440000 equity shares to mobilize Rs. 169.37 cr. (at the upper cap). The IPO consists of 3220000 fresh equity shares (worth Rs. 84.69 cr. at the upper cap), and an Offer for Sale of 3220000 equity shares (worth Rs. 84.69 cr. at the upper cap). The company has announced the price band of Rs. 250 – Rs. 263 per share of Rs. 10 each. The issue opens for subscription on January 20, 2025, and will close on January 22, 2025. The minimum application to be made is for 400 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.36% of the post-IPO paid up equity capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 17.82 cr. for technical advancement of leading-edge technology, Rs. 15.00 cr.  for business development, Rs. 5.00 cr. for investment in subsidiary, and the rest for inorganic growth and general corporate purposes. 

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and MUFG Intime India Pvt. Ltd. Is the registrar to the issue, Giriraj Stock Broking Pvt. Ltd. is the market maker for the company, and GYR Capital Advisors is a Syndicate Member.

After issuing initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 273.81 in August 2016, and has also issued bonus shares in the ration of 250 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 0.04, and Rs. 0.85 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 21.21 cr. will stand enhanced to Rs. 24.43 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 642.43 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 69.63 cr. / Rs. 15.84 cr. (FY22), Rs. 92.98 cr. / Rs. 17.35 cr. (FY23), and Rs. 100.39 cr. / Rs. 25.99 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 13.67 cr. on a total income of Rs. 51.64 cr. 

For the last three fiscals, the company has posted an average EPS of 10.09 and an average RoNW of 35.25%. The issue is priced at a P/BV of 6.87 based on its NAV of Rs. 38.26 as of September 30, 2024, and at a P/BV of 3.87 based on its posts-IPO NAV of Rs. 67.89 per share (at the upper cap). 

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 23.50. Based on FY24 earnings, the issue is at a P/E of 24.72. The issue relatively appears fully priced based on its recent financial performance. Super earnings in pre-IPO period raise eyebrows.

For the reported periods, the company has posted PAT margins of 22.93% (FY22), 18.75% (FY23), 26.47% (FY24), 27.24% (H1-FY25), and RoCE margins of 49.58%, 38.85%, 51.90%, 22.42%, respectively for the referred periods.

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Info Beans Techno, Silver Touch Techno, as their listed peer. It is trading at a P/E of 28.5, and 45.8 (as of January 16, 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 37th mandate from GYR Capital in the last four fiscals. Out of the last 10 listings, all listed with premiums ranging from 16.38% to 305.44% on the date of listings.