Earkart BSE SME IPO review

•    The company is engaged in manufacturing and marketing of modern hearing aids and related accessories across India.
•    It marked growth in its top and bottom lines for the reported periods.
•    Bumper top and bottom lines for FY25 is surprising.
•    Based on its recent financial data, the issue appears aggressively priced.
•    Well-informed/cash surplus investors may park moderate fund for medium term.

ABOUT COMPANY:
Earkart Ltd. (EL) was established to address hearing loss. It Manufactures and distributes modern hearing aids and related accessories at affordable prices across India. Along with its own manufactured hearing aid, the company also trades in hearing aid, parts and accessories of other brands manufactured in India and abroad. In addition, it offers other products like adjustable foldable walkers and Multi-Sensory Integrated Educational Development (MSIED) and Teaching Learning Material (TLM) kits to support mobility and daily needs of physically challenged. Its mission is to make quality hearing care more accessible.

It has developed a smart and easy-to-use remote audiometry machine that allows people to get tested and fitted for hearing aids from anywhere in the world. By combining advanced technology with a strong focus on customer needs, it aims to improve hearing care across India. The company offers hearing solutions through its network of partners and clinics across India, which sell both domestic and global hearing aid brands. Its focus is on Tier 2 and Tier 3 cities, where it aims to bridge the accessibility gap using innovative delivery models like branded kiosks and dedicated telehealth services. 

The company provides patients with hearing aid dispensers and access to a wide variety of other products including those manufactured/Assembled by it and international brands. Its mission is to provide patients with the right hearing solutions and service, reaching even the most remote areas of India. EL is a trusted supplier on the Government e-Marketplace (GeM) and provide hearing aids to Artificial Limbs Manufacturing Corporation of India (ALIMCO), ALIMCO is 100% government owned enterprise functioning under the Administrative Control of Ministry of Social Justice & Empowerment, Department of Empowerment of Persons with Disabilities. It derives revenue from sale of products and services by supply of Hearing aids, parts & accessories to government, Private party (retailers/distributors) and Shop in Shop (SIS).

Its sales of products include sale of own manufactured hearing aid and trading of hearing aids, parts and accessories manufactured by third party (other global and domestic brands). As of March 31, 2025, it had 38 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3649000 equity shares at a fixed price of Rs. 135 per share to mobilize Rs. 49.26 cr.  The issue comprises of 3315000 fresh equity issue worth Rs.44.75 cr. and an Offer for Sale (OFS) of 334000 equity shares worth Rs. 4.51 cr. The IPO opens for subscription on September 25, 2025, and will close on September 29, 2025. The minimum application to be made is for 3200 shares and in multiple of 1600 shares thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.53% of post-IPO paid-up equity capital of the company. The company is spending Rs. 5.69 cr. for this IPO process, and from the net proceeds of the issue, the company will utilize Rs. 21.10 cr. for working capital, Rs. 17.33 cr. capex purchase for setting of shop-in-shop business model in ENT/Ophthalmic clinics across India and related infra, and Rs. 0.63 cr. for general corporate purposes.

The IPO is solely lead managed by Sarthi Capital Advisors Pvt. Ltd., while Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd., is the market maker.

The company has issued/converted entire equity shares at par. It has also issued bonus shares in the ratio of 150 for 1 in September 2024. The average cost of acquisition of shares by the promoters/ selling stakeholders is Rs. Negligible, and Rs. 0.14 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 10.44 cr. will stand enhanced to Rs. 13.75 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 185.68 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total Income/net profit, of Rs. 28.97 cr. / Rs. 1.31 cr. (FY23), Rs. 31.97 cr. / Rs. 3.06 cr. (FY24), Rs. 43.19 cr. / Rs. 6.88 cr. (FY25). It posted growth in its top and bottom lines for the reported periods. Its debt-equity ratio of 2.02 as of March 31, 2025 raise alarm. Super earnings in a pre-IPO year appears to be a window dressing for fancy valuation of IPO.

For the last three fiscals, the company has reported an average EPS of Rs. 4.12 (basic), and an average RoNW of 35.14%. The issue is priced at a P/BV of 7.08 based on its NAV of Rs. 19.08 as of March 31, 2025, and at a P/BV of 2.87 based on its post-IPO NAV of Rs. 47.02 per share.

If we attribute its FY25 super earnings on post-IPO expanded equity base, then the asking price is at a P/E of 27.00, and based on its FY24 earnings, the P/E stands at 60.81. Thus, the issue appears aggressively priced.

The company has posted PAT margins of 4.53% (FY23), 9.57% (FY24), 15.93% (FY25), and RoCE margins of 23.00%, 27.44%, 47.32%, respectively for the referred periods.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend policy in January 2025, based on its financial performances and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown OSEL Devices, as its listed peer. It is currently trading at a P/E of 50 (as of September 24, 2025). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORDS:
This is the 9th mandate from Sarthi Capital in the last five fiscals (including the ongoing one). Out of the last 7 listings, 1 opened at discount and the rest with premiums ranging from 33.33% to 100% on the date of listing.