Clinitech Lab BSE SME IPO review (Avoid)

•    The company is engaged in providing diagnostic and healthcare tests related services.
•    It posted almost static top lines for the reported periods.
•    Boosted bottom line for FY24 raise eyebrows and concern over its sustainability going forward.
•    Based on FY24 earnings, the issue is exorbitantly priced. 
•    Tiny paid-up equity post IPO indicates longer gestation for migration.
•    There is no harm in skipping this highly risky bet.

ABOUT COMPANY:
Clinitech Laboratory Ltd. (CLL) is a provider of diagnostic and healthcare tests and services through chain of 8 diagnostic centers in and around Thane and Navi Mumbai. It conduct more than 3 Lakh tests per year in its NABL (National Accreditation Board for Testing and Calibration Laboratories) accredited labs equipped with modern technology and high-end equipment.

CLL conducts more than 150 tests at its centres which are classified under various heads such as: Biochemistry tests, Immunology tests, Hematology tests, Molecular Biology tests, Serology tests, Microbiology tests, Histopathology tests, etc. 

For FY24, its B2B business contributed around 20.33% in its top line and the rest was by B2C business. 
As of May 31, 2024, it had 85 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 602400 equity shares of Rs. 10 each at a fixed price of Rs. 96 per share to mobilize Rs. 5.78 cr. The issue opens for subscription on July 25, 2024, and will close on July 29, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.39% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.38 cr. for this IPO process and from the net proceeds, it will utilize Rs. 4.99 cr. for expansion of diagnostic centres, and Rs. 0.41 cr. for general corporate purposes. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. SVCM Securities Pvt. Ltd. is the market maker for the company. The issue is underwritten to the tune of 15% by Inventure Merchant, and 85% by SVCM Securities.

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 38 in December 2023. It also issued bonus shares in the ratio of 49 for 1 in March 2018, 1 for 3 in March 2019, and 5 for 4 in March 2022. The average cost of acquisition of shares by the promoters is Rs. NIL, and Rs. 10.00 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 1.68 cr. will stand enhanced to Rs. 2.28 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 21.91 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 6.46 cr. / Rs. 0.51 cr. (FY22), Rs. 6.36 cr. / Rs. 0.61 cr. (FY23), Rs. 6.44 cr. / Rs. 0.37 cr. (FY24). The company posted almost static top line for the reported periods and marked wild fluctuations in bottom line with a sharp decline for FY24. 

For the last three fiscals, it has reported an average EPS of Rs. 3.12, and an average RoNW of 18.44%. The issue is priced at a P/BV of 4.55 based on its NAV of Rs. 21.12 as of March 31, 2024, and at a P/BV of 2.35 based on its post-IPO NAV of Rs. 40.88 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 58.90. Thus the issue is exorbitantly priced. 

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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Dr. Lalpath Labs, Thyrocare, and Krsnaa Diagnostics as their listed peers. They are trading at a P/E of 69.8, 47.5 and 35.9 (as of July 19, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Inventure Merchant in the last four fiscals (including the ongoing one), out of the last 10 listings, 3 opened at discount, 2 at par and the rest with premiums ranging from 0.45% to 90% on the date of listing.