Cellcore Gadgets NSE SME IPO review (May apply)

•    CGL is currently in the business of trading in electronic products.
•    The company has posted bumper financial performance for FY22 and FY23.
•    Continuation and sustainability of such super performance in coming years raises concern.
•    Based on super FY23 earnings, the issue appears fully priced.
•    Well-informed/cash surplus/risk seekers may park funds.

ABOUT COMPANY:
Cellecor Gadgets Ltd. (CGL) is engaged in the procurement, branding, and distribution of televisions, mobile phones, Smart Wearables, mobile accessories, smart watches, and neckbands. The company sells its products under its flagship brand, i.e., CELLECOR. Over the years, it has been able to build a presence in India by having 1200+ service centres, and 800+ Distributor, and its products are also present at 24,000+ retail stores with 300+ wide range of products and 100 million users Pan India is purchasing a wide range of consumer products at affordable prices through dealer channels (online as well as offline).

Presently, CGL sells various products including mobile phones, data cables, and smart watches which are manufactured by its manufacturing partners as the company does not have its own manufacturing facilities. The company intends to start its own manufacturing facility in the near term.

In today's dynamic business environment which is filled with rapid change of technology, government policies, mounting competitive threats and constant new entrants into the market, growing at a rapid pace becomes challenging. The company faces competition from domestic and international companies. As of March 31, 2023, it had 211 employees on its payroll. The company is operating in a highly competitive segment with many big and small players around.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 5518800 equity shares of Rs. 10 each with a price band of Rs. 87 - Rs. 92 per share and mulls mobilizing Rs. 50.77 cr. at the upper cap. The issue opens for subscription on September 15, 2023, and will close on September 20, 2023. The minimum application to be made is for xx shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.32% of the post-IPO paid-up capital of the company. 

After reserving 276000 equity shares for the market maker, the company has allocated not more than 2620800 equity shares for QIBs, not less than 787200 shares for HNIs, and not less than 1834800 shares for Retail investors. 

From the net proceeds of the IPO, the company will utilize Rs. 40.00 cr. for working capital, and the rest for general corporate purposes (not exceeding 25% of the issue proceeds).

Narnolia Financial Services Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. While there are two market makers for the company i.e. SS Corporate Securities Ltd., and Kantilal Chhaganlal Securities Pvt. Ltd., surprisingly, there are three advisors to the IPO, i.e. Hexaxis Advisors Ltd., Longview Research and Advisor Services Pvt. Ltd., and PLS Capital Consultants Pvt. Ltd. 

Having issued/converted initial equity shares at par value, the company issued further equity shares in the price range of Rs. 305 - Rs. 5785 per share between July 2022 and April 2023. It has also issued bonus shares in the ratio of 110 for 1 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 0.69 and Rs. 3.61 per share. 

Post-IPO, CGL's current paid-up equity capital of Rs. 15.45 cr. will stand enhanced to Rs. 20.97 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 192.90 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CGL has posted a total income/net profit - (loss) of Rs. 0.00 cr. / Rs. - (0.02) cr. (FY21), Rs. 121.29 cr. / Rs. 2.14 cr. (FY22), and Rs. 264.37 cr. / Rs. 7.97 cr. (FY23).

For the last three fiscals, the company has reported an average EPS of Rs. 4.05 and an average RoNW of 55.71%. The issue is priced at a P/BV of 7.76 based on its NAV of Rs. 11.86 as of March 31, 2023, and at a P/BV of 2.99 based on its post-IPO NAV of Rs. 30.80 per share (at the upper cap).

If we attribute FY23 super earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 24.21. 

The company has posted PAT margins of 0.00% (FY21), 1.76% (FY22) and 3.02% (FY23) and RoCE of - (32.00) %, 97.03% and 63.88% for the corresponding periods respectively. 

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. 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 no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Narnolia Capital in the current fiscal. The recent 2 listings were at a premium ranging from 9.94% to 57.08% on the day of listing.