Galactico Corporate BSE SME IPO review (May apply)

•    GCSL is a diversified financial services provider company.
•    Announced robust performance on a consolidated basis.
•    Currently, the financial service sector is in doldrums, raising concern.
•    Merchant Banker has average track records.

 ABOUT COMPANY:
Galactico Corporate Services Ltd. (GCSL) is a diversified financial services company in India, carrying out the business of management of fundraising activities, investment advisory, underwriting of issues, manager, consultant or adviser to any issue including corporate advisory services and as consultant or adviser. The company is registered as SEBI Category-I Merchant Banker. GCSL is primarily focused on providing such services to small and midsized enterprises (SMEs). As on 17th September 2019, it had 9 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for repayment of unsecured loans (Rs. 0.50 cr.) and general corpus fund (Rs. 0.08 cr.) needs,  GCSL is coming out with a maiden IPO of 1608000 equity shares of Rs. 10 each at a fixed price of Rs. 23 per share to mobilize Rs. 3.70 cr. It comprises fresh equity issue of 300000 shares (Rs. 0.69 cr.) and offer for sale of 1308000 shares (Rs. 3.01 cr.).  The issue opens for subscription on 24.09.19 and will close on 27.09.19. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 28.06% of the post issue paid-up capital of the company.
 
The issue is solely lead managed by Aryaman Financial Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is the market maker for this issue. Having issued initial equity at par, it issued further equity at a price of Rs. 2375 per share from September 2016 to March 2018 and has also issued bonus shares in the ratio of 64 for 1 in March 2018. GCSL is spending Rs. 0.31 cr. (includes Rs. 0.11 cr. for a fresh issue) to mobilize the issue proceeds.
 
The average cost of acquisition of shares by the promoters is Rs. 10.37 per share.
 
Post issue, GCSL's current paid-up equity capital of Rs. 5.43 cr. will stand enhanced to Rs. 5.73
Cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, GCSL has (on a consolidated basis) posted turnover/net profits of Rs. 16.54 cr. / Rs. 1.35 cr. (FY18), Rs. 19.19 cr. / Rs. 1.42 cr. (FY19) ON a standalone basis it posted turnover/net profits of Rs. 0.52 cr. / Rs. 0.32 cr. (FY17), Rs. 1.60 cr. / Rs. 0.85 cr. (FY18) and Rs. 1.97 cr. / Rs. 0.74 cr. (FY19). For the last three fiscals on the standalone basis, it has posted an average EPS of 1.31 and an average RoNW of 6.23%, while for last two fiscals on a consolidated basis it has posted an average EPS of Rs. 2.09 and an average RoNW of 7.65%. The issue is priced at a P/BV of 1.02 on the basis of standalone NAV of Rs. 22.64 (as on 31.3.19) and post issue NAV of Rs. 22.66. On a consolidated basis, the issue is priced at a P/BV of 0.82 on its NAV of Rs. 28.03 as on 31.03.19 and at a P/BV of 0.83 on the basis of post-issue NAV of Rs. 27.77. If we consider consolidated earnings for FY19and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 9.3. Thus issue appears fully priced.
 
COMPARISION WITH LISTED PEERS:
As per offer documents, GCSLL has shown Keynote Financial and Navigant Corporate as its listed peers. They are currently quoting at a P/Es of around 8 and 10 (as on 19.09.19 closing). However, they are not strictly comparable on an apple to apple basis.
 
MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 35th mandate from its stable in the last three fiscals (including the ongoing fiscal). Out of the last 10 listings, 2 opened at discount and the rest with a premium ranging from 0.09% to 1.92%. Thus it has poor track records so far.