E2E Networks NSE SME IPO review (May apply)

E2E Networks Ltd. (ENL) is in the business of, providing Cloud Infrastructure in India. Since inception in 2009, it has strived to attain technical innovation in the Cloud migration and Deployment for its clients. ENL followed this up by launching hourly billed pure SSD (Solid-State-Drive) public cloud and private cloud. Company’s Cloud Infrastructure has been used by many well-known companies across industries like E-Commerce, Digital Classified, BFSI and whole host of new-age digital businesses. Using experience in implementing and managing infrastructure it has built fully cloud agnostic Cloud Operation Management (CloudOps) platform, which can directly use the hypervisor host machines on more than 2,000 public clouds across the world. Many of India’s best-known digital businesses have been using its CloudOps platform to boost measurable performance, while at the same time reducing their cloud spend. The Information Security Management system of the company and the Data Center for providing of cloud computing services, Management of information security for managed cloud and infrastructure services, Infrastructure-as-A-Service, Disaster Recovery & Availability Services, Managed storage and Data vaulting services and application hosting services delivered through private, public and hybrid cloud delivery model is ISO/IEC 27001:2013 certified. It provides services under the brand name of “E2E”
through Third Party Data Centers situated at Noida, Mumbai and Vellore.

To part finance its working capital and general corpus fund needs, ENL is coming out with a maiden IPO of 3858000 equity shares of Rs. 10 each at a fixed price of Rs. 57 per share to mobilize Rs. 21.99 cr. Issue opens for subscription on 03.05.18 and will close on 07.05.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Issue comprises of fresh equity issue of 2750000 shares and offer for sale of 1108000 shares. After allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Holani Consultants Pvt. Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 27.08% of the post issue paid up capital of the company. Having issued initial equity at par, it raised further equity at of Rs. 80 per share. It has also issued bonus shares in the ratio of 30 shares for every 1 share held in February 2018. Average cost of acquisition of shares by the promoters is Rs.0.39 per share. Post issue, company’s current paid up capital of Rs. 11.50 cr. will stand enhanced to Rs. 14.25 cr.

On performance front, for last four fiscals, ENL has posted turnover/net profits of Rs. 5.19 cr. / Rs. 0.28 cr. (FY14), Rs. 9.93 cr. / Rs. 0.84 cr. (FY15), Rs. 21.47 cr. / Rs. 2.22 cr. (FY16) and Rs. 29.53 cr. / Rs. 4.21 cr. (FY17). For the first nine months of the FY18 it has earned net profit of Rs.5.26 cr. on a turnover of Rs. 27.21 cr. Thus year after year it has posted improved performance. For last three fiscals it has posted an average EPS of Rs. 2.60 and an average RoNW of 33.28%. As company has already capitalized most of its reserves, issue is priced at a P/BV of 3.19 on the basis of post issue NAV of Rs. 17.87. If we annualize latest earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 12 against industry average of 942 (??? – as shown in offer documents). As per offer documents, it is showing 8KMiles as its listed peers (although it is not strictly comparable) which is trading at a P/E of around 16 (as on 26.04.18) but offer documents shows P/E of 953 as on 31.03.17 on standalone basis. Thus issue appears fully priced. Surprisingly company has shown NAV of Rs. 9.63 as on 31.03.17.

On merchant banker’s front, this is the first mandate from its stable and it has no track record for past listings.