Fonebox Retail NSE SME IPO review (May apply)

•    The company is a multi-brand retailer with over 143 stores.
•    It marked growth in its top and bottom lines for the reported periods. 
•    The company operates in a highly competitive and fragmented segment. 
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium term. 

ABOUT COMPANY:
Fonebox Retail Ltd. (FRL) is engaged in multi-brand retail selling of Smart Phones and allied accessories from manufacturers like Vivo, Apple, Samsung, Oppo, Realme, Nokia, Narzo, Redmi, Motorola, LG and Micromax. It is also engaged in multi-brand retail selling of consumer durable electronics goods like Laptop, Washing Machines, Smart TVs, Air Conditioners, Fridges, etc. from brands like TCL, Haier, Lloyd, Daikin, Voltas, MI, Realme, OnePlus.

The company operates retail business with multiple brands. It has a portfolio of retail stores with different brands. FRL initially started its business operations with brand "Fonebox", for the company owned stores as well as franchise stores. Further, it acquired famous mobile phone retail store brands such as "Fonebook" and "My Mobile" vide Business Purchase agreements from their respective owners in the year 2021. 

Over the years it has grown operations by multiple stores acquisitions. The company acquired business of other shops operating under their respective registered / unregistered brands in Financial years 2022.  The company operates under the brand name of Fonebook and Fonebox.

As of January 05, 2024 it operates from total 143 stores across the state of Gujarat. Out of 143 stores 39 stores are Company Owned and Company Operated retail outlets ("COCO Model") and 104 stores are under Franchise Owned and Company Operated retail model ("FOCO Model") distributed in more than 20 cities in Gujarat. As of January 01, 2024, it has the total 130 Employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 2910000 equity shares of Rs. 10 each (worth Rs. 20.37 cr. at the upper cap). It has announced a price band of Rs. 66 - Rs. 70 per share. The issue opens for subscription on January 24, 2024, and will close on January 29, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28.36% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, it will utilize Rs. 13.50 cr. for working capital and the rest for general corporate purposes. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd., and KFin Technologies Ltd. is the registrar of the issue. Beeline group's Spread X Securities Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 100 per share in April 2023. It has also issued bonus shares in the ratio of 6 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 6.82, Rs. 8.35, Rs. 8.89, and Rs. 8.98 per share.

Post-IPO, company's current paid-up equity capital of Rs. 7.35 cr. will stand enhanced to Rs. 10.26 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 71.82 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ - (loss) of Rs. 0.10 cr. / Rs. - (0.02) cr. (FY21), Rs. 90.92 cr. / Rs. 0.13 cr. (FY22), and Rs. 196.26 cr. / Rs. 1.60 cr. (FY23). For H1 of FY24 ended on September 30, 2024, it earns a net profit of Rs. 1.55cr. on a total income of Rs. 140.21 cr. Thus its top and bottom lines posted growth for the reported periods. 

For the last three fiscals, it has reported an average EPS of Rs. 0.83, and an average RONW of 41.97%. The issue is priced at a P/BV of 5.61 based on its NAV of Rs. 12.47 as of July 31, 2023, and at a P/BV of 2.43 based on its post-IPO NAV of Rs. 28.78 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 23.10. 

For the reported periods, the company has posted PAT margins of - (23.84) % (FY21), 0.14% (FY22), 0.82% (FY23), 1.11% (H1-FY24), and RoCE margins of - (36.99) %, 17.02%, 34.55%, 18.81% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Jay Jalaram, and Bhatia Communications as heir listed peers.  They are trading at a P/E of 198.89, and 24.54 (as of January 20, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 29th mandate from Beeline Capital in the last three fiscals, out of the last 10 listings, all opened at premiums ranging from 6.58% to 77.78% on the date of listing.