Humming Bird BSE SME IPO review (May apply)

•    The company is in the business of conducting Olympiads.
•    It operates on franchisee arrangements with the third party.
•    Financial data is on a minuscule basis. Growth in earnings for H1 of FY19 raises concern.
•    The issue is fully priced; Company will take a longer time for migration as it currently has very low equity.

ABOUT COMPANY:
Humming Bird Education Ltd. (HBEL) is engaged in the business of conducting Olympiads, where students are evaluated on a scientifically constructed syllabus and their academic performance is ranged relative to their peer group. HBEL's examinations use a multifaceted approach in judging students on their in-depth knowledge of the subjects as well as on enhance their factual, conceptual, reasoning, logical, analytical and problem solving skills, helping them better understand their strengths and weaknesses further enabling them to convert their Olympiad results into superior scholastic gains and realize their true intellectual potential.

The company has been awarded 'Asia's Greatest Brands of the year 2017-18' by Price Water House Coopers P.L. As on 31.03.18, HBEL operates 17 Humming Bird centres through franchisee arrangements with third parties.

The education sector is a highly competitive business and gets affected by frequent changes in Government policies.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its working capital and general corpus fund needs, HBEL is coming out with a maiden IPO of 163000 equity shares of Rs. 10 each at a fixed price of Rs. 132 per share to mobilize Rs. 2.15 crore. The issue opens for subscription on 15.03.19 and will close on 19.03.19. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. Issue constitutes 26.59% of post issue paid up capital of the company.

The issue is solely lead managed by Share India Capital Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Share India Securities Ltd. is acting as a market maker for this issue. Having issues all equity at par, the company has also issued bonus shares in the ratio of 1 share for every 2 shares held in September 2018. The average cost of acquisition of shares by the promoters is Rs. 0.63 and Rs. 5.83 per share. Post issue HBEL's current paid-up capital of Rs. 0.415 cr. will stand enhanced to Rs. 0.613 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, HBEL has posted turnover/net profits of Rs. 0.52 cr. / Rs. 0.01 cr. (FY16), Rs. 0.94 cr. / Rs. 0.04 cr. (FY17) and Rs. 1.17 cr. / Rs. 0.11 cr. (FY18). For the first half of the current FY19, it has posted a net profit of Rs. 0.37 cr. on a turnover of Rs. 1.09 cr. HBEL receives all orders in advance that helps it to manage its cash flow well. However, a quantum jump in the bottom line for the first half of FY19 i.e. IPO year raises concern.

For the last three fiscals, HBEL has posted an average EPS of Rs. 4.31 and an average RoNW of 57.73%. The issue is priced at a P/BV of 7.14 on the basis of its NAV of Rs. 18.48 as on 30.09.18. On the basis of post issue NAV of Rs.48.67, the issue is priced at a P/BV of 2.71. If we annualize latest bumper earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 11. issue appears fully priced.

COMPARE WITH LISTED PEERS:
As per the offer documents, it has shown CL Educate, Navneet Education, Siddharth Education and Shanti Educational as its listed peers. However, all of them are strictly not comparable with the model of HBEL. These peers are currently trading at a P/Es of around 21, 14, 11 and NA. (As on 13.03.19)

MERCHANT BANKER'S PERFORMANCE:
On merchant banker's front, this is the 2nd mandate from its stable. The only listing took place recently (i.e. Anmol India) opened at a premium of 1.81% on the day of listing.