Inspire Films NSE SME IPO review (Neutral)

•    IFL is in the business of providing television and digital content and related services.
•    It has posted growth in its top line for the reported periods. 
•    The sudden boost in its bottom lines in a pre-IPO year appears to have been cooked up for fancy valuations. 
•    Based on FY23 super earnings, the issue appears aggressively priced. 
•    Well-informed/risk seeker/cash-rich investors may park funds, other may stay away. 

ABOUT COMPANY:
Inspire Films Ltd. (IFL) is primarily engaged in the business of creation, production, distribution, and exhibition of television and digital content across broadcasting channels, apps, and digital platforms as well as content writing, production and sale, purchase of rights. It is involved in every aspect of the content-making process, from development to distribution. This includes financing the projects, hiring actors and crew members, scouting locations, creating sets, managing the budgets, and overseeing the entire production and post-production process.

As per PWC's report on India: Entertainment & Media Outlook 2022‑2026, the entertainment industry has undergone a significant transformation with the emergence of Over-the-Top (OTT) platforms, in recent years. These platforms, such as Netflix, Amazon Prime Video, Disney+ Hotstar, Sony Liv, Voot, Jio, and many others, have revolutionized the way of consuming entertainment content. IFL endeavors to exploit these technological advances to reach audiences in India and globally with entertaining, socially relevant, and heartfelt content. The company follows the B2B model of business. As of the date of filing this offer document, IFL had 35 professionals and 9 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 3598000 equity shares of Rs. 10 each via a book-building route to mobilize Rs. 21.23 cr. at the upper cap. It has announced a price band of Rs. 56 - Rs. 59 per share. The issue opens for subscription on September 25, 2023, and will close on September 27, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.44% of the post-IPO paid-up capital of the company. From the net proceeds of the issue, the company will utilize Rs. 12.98 cr. for working capital, and the rest for general corporate purposes. 

After reserving 180000 shares for the market maker, the company has allocated not more than 1706000 shares for QIBs, not less than 514000 shares for HNIs, and not less than 1198000 shares for the Retail investors. 

Narnolia Financial Services Ltd. is the sole lead manager and Maashitla Securities Pvt. Ltd. is the registrar of the issue. Share India Securities Ltd. is the market maker for the company. PLS Capital Consultants Pvt. Ltd. and Longview Research and Advisory Services Pvt. Ltd. are the advisors to the issue. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 15666.67 per share in October 2022 and has also issued bonus shares in the ratio of 940 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. 5.01 per share. 

Post-IPO, IFL's current paid-up equity capital of Rs. 10.01 cr. will stand enhanced to Rs. 13.61 cr. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 80.30 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company posted a total income/net profit/-(loss) of Rs. 19.43 cr. / Rs. - (0.83) cr. (FY21), Rs. 38.15 cr. / Rs. 0.26 cr. (FY22), and Rs. 48.85 cr. / Rs. 4.05 cr. (FY23). The sudden boost in its bottom line for pre-IPO year FY23 appears to have been cooked up to pave fancy valuations. 

For the last three fiscals, the company has reported an average EPS of Rs. 1910.67 (based on an equity capital of Rs. 0.01 cr.) and an average RoNW of 14.74%. The issue is priced at a P/BV of xx based on its NAV of Rs. 12714 as of March 31, 2023, and at a P/BV of xx based on its post-IPO NAV of Rs. 25.23 (at the upper cap).

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 19.87, while based on FY22 earnings, the P/E stands at 310.53. Thus the issue appears aggressively priced discounting all near-term positives. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, IFL has shown Balaji Telefilms, Bodhi Tree, and V R Films as their listed peers. They are trading at a P/E of 12.03, 36.34, and 45.86 (as of September 22, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Narnolia Capital in the current fiscal. The recent 2 listings were at a premium ranging from 9.94% to 57.08% on the day of listing.