EMA Partners NSE SME IPO review (May apply)

•    The company is one of the leading executive search firms providing customized leadership hiring solutions.
•    It posted a minor setback for FY23 in line with the general trends for the industry in the Pandemic.
•    With its specialized solutions providing for leadership hiring, it earns higher margins in its business.
•    Based on recent financial performance, the issue appears fully priced. 
•    Well-informed investors may park funds for medium to long term.

ABOUT COMPANY:
EMA Partners India Ltd. (EPIL) is one of the leading executive search firms delivering customized leadership hiring solutions to a wide range of clients across diverse sectors. The Company has recruited several business and functional leaders for domestic and international clients. The Company entered into a membership agreement on September 25, 2003 and became a member firm of “EMA Partners International Limited” domiciled in London. The key objectives of “EMA Partners International Limited” are:

a) To bring together independent professional firms around the world so that member firms can offer professional executive search services to their clients, wherever these clients operate
b) To encourage member firms to meet the service requirements of each other’s clients
c) To promote and market the name “EMA Partners International” so that member firms can be selected as executive search / management consultants to the international business community.
d) To advance the mutual professional and business interests of member firms.

By virtue of this agreement, the Company associated itself with an international group of executive search firms associated as member firms of “EMA Partners International Limited” and is allowed to use this brand name.

The Company, headquartered in Mumbai, has offices in Chennai, Gurgaon and Bengaluru. With a view to tap into the global talent and client pool, the Company expanded its operations in South East Asia by setting up a subsidiary EMA Partners Singapore Pte Ltd in Singapore in September 2010. Later, the Company saw growth opportunities in Middle East and set up 2 subsidiaries - EMA Partners Executive Search Limited (Dubai) in March 2017 and James Douglas Professional Search
Limited (Dubai) in July 2022.

James Douglas is one of the founding partners of EMA Partners International and has permitted the Company to use his name to create a brand which specializes in agile recruitment solutions for mid to senior-level positions across diverse industries. The Company has 2 subsidiaries using the “James Douglas” brand name – James Douglas Professional Search India Private Limited which was incorporated on May 14, 2021 and James Douglas Professional Search Limited (Dubai) which was incorporated on July 25, 2022 in Dubai. As of November 30, 2024, it had 117 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route combo IPO of 6130000 equity shares to mobilize Rs. 76.01 cr. (at the upper cap). The IPO consists of 5334000 fresh equity shares (worth Rs. 66.14 cr. at the upper cap), and an Offer for Sale of 796000 equity shares (worth Rs. 9.87 cr. at the upper cap). It has announced a price band of Rs. 117 – Rs. 124 per share of Rs. 5 each. The issue opens for subscription on January 17, 2025, and will close on January 21, 2025. The minimum number of shares to be applied is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 25.53 cr. for augmenting leadership team of the group, Rs. 6.45 cr. for capex on IT infra, Rs. 5.43 cr.  for repayment/prepayment of certain borrowings, and the rest for general corporate purposes. 

The IPO is solely lead managed by Indorient Financial Services Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Alacrity Securities Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 104 per share in September 2024. It has also issued bonus shares in the ratio of 200 for 1 in August 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.02, and Rs. 0.86 per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 8.96 cr. will stand enhanced to Rs. 11.62 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 288.26 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 57.87 cr. / Rs. 11.48 cr. (FY22), Rs. 51.06 cr. / Rs. 2.94 cr. (FY23), and Rs. 68.84 cr. / Rs. 14.62 cr. (FY24). For 4M of FY25 ended on July 31, 2024, it earned a net profit of Rs. 4.33 cr. on a total income of Rs. 26.33 cr. It posted setback for FY23 in line with the general trends of the industry following the Pandemic. The company enjoys better margins following its specialized solution providing aspects.

For the last three fiscals, the company has reported an average EPS of Rs. 5.91 and an average RoNW of 23.58%. The issue is priced at a P/BV of 3.64 based on its NAV of Rs. 34.02 as of July 31, 2024, and at a P/BV of 2.16 based on its post-IPO NAV of Rs. 57.42 per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 22.22. Based on FY24 earnings, the P/E stands at 19.71. The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 19.48% (FY22), 6.01% (FY23), 20.74% (FY24), 16.61% (4M-FY25), but RoCE margins data is missing.

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

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Quess Corp, Teamlease Services, as their listed peer. They are trading at a P/E of 25.7, and 45.4 (as of January 15 2025). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER’S TRACK RECORD:
This is the 9th mandate from Indorient Financials in the last five fiscals.  Out of the last 8 listings, 1 opened at discount, and the rest with premiums ranging from 0.12% to 90% on the date of listings.