Kandarp Digi NSE SME IPO review (Avoid)

•    KDSBL is engaged in BPO services and related solution business.
•    It marked almost static top line with declining profits for the last 4 fiscals.
•    Based on its FY22 earnings, the issue is aggressively priced. 
•    The Parent company RDSL marks thin trades at discount against its offer price.
•    Stay away from this pricy bet with dismal financial track records.

PREFACE:
KDSBL is a subsidiary of Reliable Data Services Ltd. (RDSL) which came with its IPO at Rs. 57 per share in October 2017 and had the last quote at Rs. 52 on NSE SME Emerge. RDSL gave the mandate to Swastika Investmart, but for its subsidiary, it has given a mandate to Beeline Capital. 

ABOUT COMPANY:
Kandarp Digi Smart BPO Ltd. (KDSBL) is engaged in BPO services specializing in the area of support services solutions. The Company provides a wide range of support services such as Call Centre, Contact Point Verifications, Site Visits, Document check/Pickup, E-KYC, Skip Tracing, Employee Back Check, Staffing Solutions, Payroll Management, Payment Collections (soft), AMC Booking Services, etc. to its clients and specializes in providing End to End solutions to customers/clients. 

It believes in providing efficient and accurate services which is the core value of the organization. KDSBL's services are focussed on delivering outstanding results for clients. 

The Company is an ISO 9001:2015 certified company for Quality Management Services in the field of Banking Verifications, Credit and Risk Control/ Pick-Up Activities, Call Centre and Audit. It is providing all these services for the last two decades.

KDSBL is a subsidiary of promoter company Reliable Data Services Limited which is listed on the NSE SME Emerge and is not having any trades currently. Kandarp Digi Smart BPO Limited is a Reliable Group Company driven by a highly innovative team of professionals. As on March 31, 2022, the Company has 41 employees on the payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 6.00 cr.), general corporate purposes (Rs. 1.10 cr.), KDSBL is coming out with a maiden IPO of 2700000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 8.10 cr. The issue opens for subscription on September 16, 2022, and will close on September 20, 2022. The minimum application to be made is for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30.09% of the post-issue paid-up capital of the company. KDSBL is spending Rs. 1.00 cr. for this IPO process, indicating the structured nature of the IPO. 

The issue is solely lead managed by Beeline Capital Advisors Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Sunflower Broking Pvt. Ltd. is the market maker for this company.

Having issued initial equity at par, the company issued further equity shares at a price of Rs. 40 in March 2017, and has also issued bonus shares in the ratio of 8 for 1 in January 2022. The average cost of acquisition of shares by the promoters is Rs. 0.08, Rs. 0.16, and Rs. 3.49 per share. 

Post-IPO, KDSBL's current paid-up equity capital of Rs. 6.27 cr. will stand enhanced to Rs. 8.97 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 26.92 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, KDSBL has posted turnover/net profits of Rs. 11.07 cr. / Rs. 1.48 cr. (FY19), Rs. 10.13 cr. / Rs. 1.12 cr. (FY20), Rs. 10.54 cr. / Rs. 0.11 cr. (FY21), and Rs. 12.88 cr. / Rs. 0.94 cr. (FY22). Thus while its top line remained almost static, its bottom line marked inconsistency with declining trends.

For the last four fiscals, it has posed an average EPS of Rs. 1.24 and an average RoNW of 11.04%. The issue is priced at a P/BV of 2.61 based on its NAV of Rs. 11.50 (in the offer documents its perhaps a typo error of showing Rs. 1.50) as of March 31, 2022, and at a P/BV of 1.80 based on its post-IPO NAV of Rs. 16.67 per share. 

If we attribute FY22 earnings on post IPO fully diluted equity capital, then the asking price is at a P/E of 28.57.
 
DIVIDEND POLICY:
The company has not declared/paid any dividend for the last five fiscals. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, KDSBL has shown Firstsource Solutions and eClerx Services as its listed peers. They are currently trading at a P/E of 22.8 and 22.68 (as of September 13, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 3rd mandate from Beeline Capital in this fiscal itself. The only listing that took place so far (Jay Jalaram) opened with a 38.89% premium on the listing date.