Identical Brains NSE SME IPO review (Apply)

•    The company is engaged in providing comprehensive VFX services for electronic media, films etc.
•    It posted quantum jump in its top and bottom lines from FY24 onwards.
•    Its portfolio includes few upcoming projects from well-known production houses. 
•    Based on its FY25 annualized earnings, the issue appears fully priced.
•    Investors may park funds for medium to long term. 

ABOUT COMPANY: 
Identical Brains Studios Ltd. (IBSL) is a provider of computer-generated visual effects ("VFX") services, offering comprehensive suite of VFX services in diverse range of projects such as films, web series, TV series, documentaries, and commercials. Its operations are currently from India and customers include some of the leading film and content producers, including major Bollywood Studios. It transforms the imagination, ideas, and words into captivating visual realities. Its team of qualified, creative and technical professionals collaborates to bring forth creations that elevate storytelling and captivate audiences worldwide. Whether it's breathing life into fantastical creatures or seamlessly integrating Computer-generated imagery ("CGI") elements into live-action footage, IBSL is committed to pushing the boundaries of creativity and innovation in visual effects.

Visual Effects or VFX encompasses the creation or manipulation of any imagery that isn't filmed during live-action shooting using techniques, including computer-generated imagery, compositing, and green screens, alongside services like 3D modelling, animation, rotoscoping, pre-visualization, concept art and more. The Indian VFX industry has grown exponentially, from USD 107.7 million in CY 2020 to USD 647.2 million in CY 2023 CAGR of approximately 81.8% and is projected to nearly triple in size, jumping from USD 647 million in CY 2023 to USD 1,823 million by CY 2030. 

The company has provided VFX services for films that have achieved significant industry recognition. Its portfolio includes upcoming projects like Tanaav 2, Criminal Justice 4, and completed projects include Khel Khel Mein, Murder in Mahim, Bad Cop, The Crew, Article 370, Mission Raniganj, Dream Girl 2, Adipurush, Indian 2, Rocket Boys, Bob Biswas, Kutch Express, Ek Villian Returns, Night Manager, Criminal Justice 3, Phone Bhoot, Satyamev Jayate 2, Angrezi Medium, Scam 1992: The Harshad Mehta Story, Good Newwz, Panipat and many more. Since 2019, the company has provided VFX services for films that has received two Filmfare OTT Awards nominations, one Filmfare Awards nomination, one Dadasaheb Phalke Awards nomination and one FOI Online Awards nomination for Best Visual Effects and has won two Filmfare OTT Awards for Best Visual Effects for Scam 1992: The Harshad Mehta Story (2020) and Rocket Boys (2022) in association with Variate Studios LLP and one Dadasaheb Phalke Awards for Phone Bhoot (2022) for Best Visual Effects. As of September 30, 2024, it had 18 employees on its payroll, and additional 92 contractual employees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3694000 equity shares of Rs. 10 each to mobilize Rs. 19.95 cr. at the upper cap. It has announced a price band of Rs. 51 - Rs. 54 per share. The issue opens for subscription on December 18, 2024, and will close on December 20, 2024. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 7.04 cr. for working capital, Rs. 3.43 cr. for capex on purchase of computers, storage system, software to strengthen its existing facility/office, Rs. 0.76 cr. for capex on new branch office, Rs. 2.86 cr. for capex on establishing colour grading digital intermediate and sound studio set up at new branch, Rs. 0.52 cr. for capex on renovation of Andheri office and studio, and the rest for general corporate purposes. 

The IPO is solely lead managed by Socradamus Capital Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Rikhav Securities Ltd., is the Market Maker for the company, as well as the syndicate member. 

After issuing initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 25500 per share in December 2023, and also issued bonus shares in the ratio of 595 for 1 in December 2023, and 1 for 2 in July 2024. The average cost of acquisition of shares by the promoters is Rs. 0.01 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 10.33 cr. will stand enhanced to Rs. 14.03 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 75.74 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 3.91 cr. / Rs. 0.51 cr. (FY22), Rs. 8.08 cr. / Rs. 1.61 cr. (FY23), and Rs. 20.26 cr. / Rs. 5.35 cr. (FY24). For H1 of FY25 ended on September 30, 2024, it earned a net profit of Rs. 2.41 cr. on a total income of Rs. 11.50 cr. The sudden boost in its top and bottom lines from FY24 onwards raises eyebrows.

For the last three fiscals, the company has reported an average EPS of Rs. 3.19 and an average RoNW of 47.53%. The issue is priced at a P/BV of 3.88 based on its NAV of Rs. 13.90 as of September 30, 2024, and at a P/BV of 2.21 based on its post-IPO NAV of Rs. 24.46 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 15.74, and based on FY24 earnings, the P/E stands at 14.17.  The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 13.10% (FY22), 20.05% (FY23), 26.62% (FY24), 21.11% (H1-FY25), and RoCE margins of 81.40%, 108.80%, 103.52%, 25.80%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer documents. It has adopted a dividend policy in August 2024, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown Prime Focus, Digikore Studio, Phantom Digital, and Basilic Fly as their listed peers. They are trading at a P/E of NA, 28.4, 16.3, and 30.0 (as of December 13, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 1st mandate from Socradamus Capital in the ongoing fiscal.  Thus it has no previous listing track records.