Innovatus Entertainment BSE SME IPO review (Avoid)

•    IENL is engaged in providing direct marketing solutions and related services.
•    It marked static performance for FY21 and FY22.
•    The sudden boost in its top and bottom line of FY23 raises eyebrows.
•    Based on FY23 super earnings, the issue appears exorbitantly priced.
•    The small equity base post-IPO indicates longer gestation for migration to the mainboard.
•    Investors may skip this pricey issue.

PREFACE:
The company filed its prospectus with the concerned regulator on 19.07.23 and published an IPO ad in Business Standard dated 21.07.23, but the final offer documents were made available only post noon of Monday, July 24, 2023, after vigorous follow-up on the BSE Website. It appears that the company, the Exchange, and LM do not believe in compliance. The offer documents were obtained were still missing from LM and Company websites. It's really high time for SEBI to keep a tab on such deliberate delays. What is more important, the company's website was missing investors info page till Monday eve i.e. 17.10 hrs. of July 24, 2023. Can such lapses be tolerated by regulators?

ABOUT COMPANY:
Innovatus Entertainment Networks Ltd. (IENL) is engaged in providing all the Direct marketing solutions- Management, CRM, B2B and B2C, Activations and Exhibitions. It is a creative platform for complete 'Infotainment' with a 360-degree solution. The company focuses on concept development to creatives to a total turnkey presentation and on-ground execution. 

The company is looking forward to reaching a new level of innovation, through integrated media and satisfactory engagement of the audience carving an exemplary niche in the field of 'Infotainment' and creating a unique identity of a dedicated company on the global map.

It offers a complete range of designing, media and printing services. IENL's strength is media buying where it understands the clients' marketing objective and uses the correct media to achieve that objective. The company is able to understand the various media available and use the right mix of media and the right prices to achieve the client's media objectives. As of the date of filing this offer document, it had 11 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1548000 equity shares of Rs. 10 each at a fixed price of Rs. 50 per share to mobilize Rs. 7.74 cr. The issue opens for subscription on July 25, 2023, and will close on July 27, 2023. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 39.11% of the post-IPO paid-up capital of the company. IENL is spending Rs. 0.70 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 2.88 cr. for working capital, Rs. 2.64 cr. for purchasing exhibition-related material, and Rs. 1.52 cr. for general corporate purposes. 

Inventure Merchant Banker Services Pvt. Ltd. is the sole lead manager and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Pure Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par value, the company has issued further equity shares at a price of Rs. 50 per share in January 2023. It has also issued bonus shares in the ratio of 200 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 0.05, and Rs. 50.00 per share. 

Post-IPO, IENL's current paid-up equity capital of Rs. 2.41 cr. will stand enhanced to Rs. 3.96 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 19.79 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IENL has posted a total revenue/net profit of Rs. 7.84 cr. / Rs. 0.33 cr. (FY21), Rs. 7.88 cr. / Rs. 0.30 cr. (FY22), and Rs. 10.94 cr. / Rs. 0.48 cr. (FY23). After the static top and bottom lines, the company reported marginal growth in its top and bottom lines. 

For the last three fiscals, IENL has reported an average EPS of Rs. 1.78 and an average RoNW of 11.98%. The issue is priced at a P/BV of 2.49 based on its NAV of Rs. 20.06 as of March 31, 2023, and at a P/BV of 1.53 based on its post-IPO NAV of Rs. 32.78 per share. 

If we attribute FY23 super earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 41. Thus the issue appears exorbitantly priced. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from Inventure Merchantbanker in the last four fiscals (including the ongoing one). Out of the last 7 listings, 3 opened at discount, 1 opened at par and the rest listed at premiums ranging from 0.45% to 57.14% on the listing date. Most of the previous mandate from this LM is trading at a discount at present. It has a poor track record.