Gretex Corp BSE SME IPO review (Avoid)

•    GCSL is offering diversified financial and consultancy services in the finance sector.
•    Its financial performance shows languishing trends.
•    Pricing of the issue is aggressive based on its financial track records.
•    Considering tiny equity post IPO, it will take a long time to migrate to the mainboard.
•    There is no harm in skipping this offer.

ABOUT COMPANY:
Gretex Corporate Services Ltd. (GCSL) is offering diversified financial and consultancy services in the areas of Capital Markets, Corporate Finance, Corporate Restructuring, Debt Syndication, Compliance Advisory. It started operations in the year 2008, in the initial years the company was engaged in the business of providing project finance services to companies through banks and financial institutions. In the year 2011, the company started providing services of the capital market such as Direct listing of companies on nationwide stock exchanges. This new venture gave management an interest to explore more opportunities in the capital market. So, in the year 2013 GCSL applied for the license of merchant banking with the Securities and Exchange Board of India (SEBI). SEBI has provided the company with an Initial Certificate of Registration which was valid for a period of 5 years. In the year 2019, its initial certificate of registration was renewed and a permanent registration was provided by SEBI.

For the past six years, it has been carrying out the business of management of fund-raising activities, investment advisory, underwriting of issues, manager, consultant or adviser to any issue including corporate advisory services and as consultant or adviser to the issuer.

Traditionally the only way of finance was through debt or personal finance but debt funding often restricts the real growth of a company and it is seen that a company can achieve great heights when it goes public. The company attains growth when it unlocks the real value of the company through valuing the shares of the company. Over time it has developed an expertise in the area of identifying Small and Medium Enterprises, determine their funding requirement and carter the company's funds needs by taking the company public by the mean of an IPO on the SME Exchange in India. GCSL primarily cater for the needs of Small and Medium Enterprises, but its services are not limited to SMEs, over the period of years it has been able to successfully create its name in Primary markets for successfully executing 21 SME IPOs and 1 BSE Startups Segment under SME Platform of BSE Limited.

As of March 31, 2021, it employed 6 personnel (full-time employees) who look after the day-to-day business operations, administrative, secretarial, legal and accounting functions in accordance with their respective designated duties. The company is engaged in the segment which is highly competitive and many big players are in the fray.
 
ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for payment of security deposit for renting of office space (Rs. 2.55 cr.) working capital (Rs. 0.50 cr.) and general corpus funds (Rs. 0.70 cr.) GCSL is coming out with a maiden IPO of 301600 equity shares of Rs. 10 each at a fixed price of Rs. 170 per share. The IPO comprises an issue of 237600 fresh equity shares and 64000 shares by way of an offer for sale. The company mulls mobilizing Rs. 5.13 cr. with the issue. It opens for subscription on July 27, 2021, and will close on July 30, 2021. Minimum application is to be made for 800 shares and in multiples thereof, thereafter. The issue constitutes 26.52% of the post issue paid-up capital of the company. Post allotment, shares will be listed on BSE SME.

The issue is solely lead managed by Aryaman Financial Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Intellect Stock Broking Ltd. is acting as a market maker for this IPO. GCSL will spend Rs. 0.36 cr. for this IPO process.

Having issued initial equity at par, GCSL raised further equity in the price range of Rs. 82 to Rs. 1000 per share between March 2009 and July 2020. It has also issued bonus shares in the ratio of 2 for 1 in July 2013. The average cost of acquisition of shares by the promoters is Rs. Xx per share.  

Post issue, GCSL's current paid-up equity capital of Rs. 0.90 cr. will stand enhanced to Rs. 1.14 cr. At the issue price, the company is looking for a market cap of Rs. 19.34 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, GCSL has posted an income/net profit of Rs. 3.15 cr. / Rs. 0.25 cr. (FY19), Rs. 1.45 cr. / Rs. - (1.15) cr. (FY20) and Rs. 3.25 cr. / Rs. 0.71 cr. (FY21). The company suffered a setback for FY20. (refer to page 70 of the offer document).

For the last three fiscals, it has reported an average EPS of Rs. - (3.80) and an average RoNW of - (8.60%). The issue is priced at a P/BV of 2.44 based on its NAV of Rs. 69.78 as of March 31, 2021, and at a P/BV of 1.87 based on post issue NAV of Rs. 90.72. Thanks to heavy premium collections for the issue of equity shares that have lion share in its NAV.

If we attribute FY21 super earnings on fully diluted post issue equity capital, then the asking price is at a P/E of 27.29 thus the issue is aggressively priced. But its mega loss of FY20 overshadows the last three fiscals' performance and hence on the said basis, its P/E stands negative.

COMPARISON WITH LISTED PEERS:
As per offer documents, GCSL has shown Navigant Corporate Advisors and Galactico Corporate Services as its listed peers. They are currently trading at a P/E of 9.92 and 35.5 (as of July 23, 2021). However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
As per offer documents, GCSL has no formal dividend policy and has not paid any dividend in the last five years. However, it will follow a prudent dividend policy post listing on the basis of its financial performance and business prospects.

MERCHANT BANKER'S TRACK RECORD:
On the merchant banker's front, this is the fourteenth mandate from its stable in the last three fiscals (including the ongoing one). Out of the last ten listings, one opened at discount and remaining with a premium ranging from 0.04% and 2.16%. Thus it has an average track record.