Eastern Logica BSE SME IPO review (Avoid)

•    ELIL is engaged in multi-brand retailing and distribution business.
•    It operates in a highly competitive segment. 
•    Based on its financial data, the issue appears aggressively priced.
•    Post-IPO lower paid-up capital indicates longer gestation for migration.
•    There is no harm in skipping this pricey bet.

PREFACE:
This issue is brought by Oneview Corporate Advisors Pvt. Ltd. which has an ex-Guinness Corporate Advisors Pvt. Ltd. team. After going through its website, its linkage to all old Guinness mandates shows that this company is run by scions of the Kothari group. 

ABOUT COMPANY:
Eastern Logica Infoway Ltd. (ELIL) is engaged in multi-brand retail and retail selling as well as distribution of branded smartphones, IT hardware, software, and allied accessories and services. The company also provides networking and security solutions to its consumers. 

It has been steadily increasing its market reach to cover 11 cities across the country by setting up retail stores, and distribution centres, venturing into eCommerce and setting up virtual offices. There has been a continuous rise in its revenue from operations and moreover, the company has demonstrated profitability with operating performance.

As of December 15, 2022, the Company has 4 offices, 11 retail stores, 2 distribution centres, and virtual offices across 11 cities in the Country. The company is having good customer relations in the northeast regions with over 95% of turnover coming from these regions. As of November 30, 2022, it has 101 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a combo IPO of 664200 fresh equity shares (Rs. 14.94 cr.) and an Offer for Sale (OFS) of 127800 equity shares (Rs. 2.00 cr.)  of Rs. 10 each at a fixed price of Rs. 225 per share to mobilize Rs. 16.94 cr. The issue opens for subscription on January 05, 2023, and will close on January 09, 2023. The minimum application is to be made for 600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.41% of the post-issue paid-up capital of the company. ELIL is spending Rs. 0.47 cr. (including Rs. 0.05 cr. for OFS expenses) for this IPO process. From the residual funds, it will utilize Rs. 13.47 cr. for the working capital and Rs. 1.00 cr. for general corporate purposes. 

Oneview Corporate Advisors Pvt. Ltd. is the sole lead manager of the issue and KFin Technologies Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 12 to Rs. 250 between September 2008 and January 2022. The average cost of acquisition of shares by the promoters is Rs. 43.00 and Rs. 47.92 per share. 

Post-IPO, ELIL's current paid-up equity capital of Rs. 2.19 cr. will stand enhanced to Rs. 2.85 cr. Based on the IPO pricing the company is looking for a market cap of Rs. 64.14 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ELIL has posted a turnover/net profit of Rs. 498.83 cr. / Rs. 1.82 cr. (FY20), Rs. 447.03 cr. / Rs. 2.34 cr. (FY21), and Rs. 615.58 cr. / Rs. 2.85 cr. (FY22). It suffered a minor setback in its top line during the pandemic year but surprisingly posted higher net. 

For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 1.33 cr. on a turnover of Rs. 305.04 cr. 

For the last three fiscals, ELIL has reported an average EPS of Rs. 11.80 and an average RoNW of 7.67%. The issue is priced at a P/BV of 1.37 based on its NAV of Rs. 164.81 as of September 30, 2022, and at a P/BV of 1.29 based on its post-IPO NAV of Rs. 174.16 per share. 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 24.09. Thus issue appears aggressively priced. 

DIVIDEND POLICY:
The company has not declared any dividends for the last five fiscals. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, ELIL has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The offer document is missing the merchant banker's track record data. Even the merchant banker's website has no info on this aspect as of January 02, 2023, (around 16.15 hrs). But as learned from the website, this company is run by ex-Guinness group scions. However, it appears to be the first mandate under the new banner.