Ekennis Software BSE SME IPO review (Avoid)

•    ESSL is in the business of ERP, IT solutions and digital printing business.
•    Based on its super earnings, the issue is fully priced. 
•    ESSL's spending of Rs. 0.80 cr. for mobilizing Rs. 2.88 cr. indicates funding arrangements.
•    Small paid-up equity post IPO will have long gestation for the migration process. 
•    There is no harm in ignoring this issue. 

ABOUT COMPANY:
Ekennis Software Services Ltd. (ESSL) is in the business of Software IT Solution and Consulting Services, IT Product / Software Development and Software Training, Enterprise Resource Planning Solution, Learning Management Solution, 3D Printing, Digital Printing and Packaging Design Management consultancy. It has leveraged domain expertise, processes and infrastructure to diversify its offering of services to cater to a variety of business sectors.

ESSL consult develops solutions around ERP systems that optimize business processes and leverage corporate knowledge leading to competitive advantage. The company also provide business process analysis and system design, technical expertise, implementation, training and support services. It has expertise in SAP ERP (Technical & Functional). ESSL's major focus areas for implementation are discrete Manufacturing, Automotive, Food Processing, Chemicals, Telecom sectors. It has a team of SAP professionals who have the credentials and capabilities to support service and consult customers. Its consultants are trained and qualified in SAP, Microsoft and Oracle.

As of December 31, 2021, it had 54 employees on payrolls, which look after the day-to-day business operations, administrative, secretarial, legal and accounting functions in accordance with their respective designated duties.

It's digital printing under "myperfectpack" brand, supplies a range of innovative packaging products for the Food, Baby Care, Personal & Hygiene, Industrial & Agriculture industries. Considering its current operations, its name misleads as a pure IT company.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for the purchase of plant and machinery (Rs. 0.31 cr.), working capital (Rs. 1.13 cr.) and general corporate purpose (Rs. 0.64 cr.), ESSL is coming out with a maiden IPO of 400000 equity shares of Rs. 10 each at a fixed price of Rs.72 per share to mobilize Rs. 2.88 cr. The issue opens for subscription on February 21, 2022, and will close on February 24, 2022. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.57% of the post issue paid-up capital of the company. ESSL will spend Rs. 0.80 cr. for this IPO process. This indicates funding arrangement for the issue done by the intermediaries. 

The issue is being solely lead managed by Shreni Shares Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also the market maker for this company. 

After issuing initial equity at par, the company has issued bonus shares in the ratio of 19 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 0.50 per share. 

Post this IPO, ESSL's current paid-up equity capital of Rs. 1.00 cr. will stand enhanced to Rs. 1.40 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 10.08 cr.

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last two fiscals, ESSL has posted turnover/net profits of Rs. 4.86 cr. / Rs. 0.23 cr. (FY20), Rs. 4.69 cr. / Rs. 0.95 cr. (FY21). For the first nine and half months of FY22 ended on January 15, 2022, it has earned a net profit of Rs. 0.70 cr. on a turnover of Rs. 3.67 cr. 

For the last two fiscals, it has posted an average EPS of Rs. 7.08 and an average RoNW of 78.97% (on pre-bonus equity base). The issue is priced at a P/BV of 3.74 based on its NAV of Rs. 19.27 as of January 15, 2022, and at a P/BV of 2.51 based on its post-IPO NAV of Rs. 28.66. 

If we annualize FY22 earnings and attribute it to fully diluted post issue equity, then the asking price is at a P/E of 11.4. This makes this offer a fully priced bet. 

DIVIDEND POLICY:
The company has not declared any dividend since incorporation. It will adopt a prudent dividend policy post listing based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, ESSL has shown Mindpool Techno as its listed peer that is currently trading at a P/E of 22.65. (as of February 18, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORDS:

This is the 10th mandate from Shreni shares in the last three fiscals (including the ongoing one). Out of the last nine listings, 2 opened at par and the rest with premiums ranging from 0.56% to 19.04% on the day of listings.