Ksolves India NSE SME IPO review (Avoid)

•    KIL is a software services and product company.
•    It derives maximum revenue from exports to over 30 countries.
•    Financial data is not in line with its asking price.
•    LM has an average track record and this is just 2nd mandate from its stable.

ABOUT COMPANY:
Ksolves India Ltd. (KIL) is an ISO certified software services and product company offering solutions that enable client organizations to rapidly develop powerful applications addressing their strategic business needs. The applications created by it enable organizations to drive digital transformation and competitive differentiation. This may include automation of routine business functions, making them faster, easier and more accurate and increasing the channels or devices through which these functions can be performed.

KIL is basically engaged in software development, enterprise solutions and consulting, providing a range of Information Technology ('IT') solutions to companies across sectors such as Real Estate, E-commerce, Finance, Telecom and Healthcare etc. The company designs, develops and maintains software systems and solutions, create new applications and enhance the functionality of its customer's existing software products.

Company has acquired 100% stake in Kartik Solutions Private Limited in the year 2019 which become a wholly-owned Subsidiary company. This Subsidiary Company is engaged in providing IT and IT Enabled Services which include mobile application development, web solutions, E-commerce solutions and cloud solutions.

Company's revenue is predominantly generated from exports sales and it is providing Information Technologies services to clients over 30 countries and over 80% of sales come from North American Clients.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 2.80 cr.) and general corpus fund needs (Rs. 0.82 cr.), KIL is coming out with a maiden IPO of 402000 shares of Rs. 10 each at a fixed price of Rs. 100 per share to mobilize Rs. 4.02 cr. The issue opens for subscription on 23.06.20 and will close on 26.06.20. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue constitutes 27.13% of the post issue paid-up capital of the company.

The issue is solely lead managed by Shreni Shares Pvt. Ltd., while Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a market maker for this IPO. KIL is spending Rs. 0.40 cr. for this IPO process.  From the issue expenses point of view, this issue is fully structured with funding arrangements.

Post issue KIL's current paid-up equity capital of Rs. 1.08 cr. will stand enhanced to Rs. 1.48 cr. It mulls a market cap of Rs. 14.82 cr. post this issue.

Having issued initial equity at par, KIL has also issued rights equity shares at a fixed price of Rs. 101 per share in the ratio of 5 for 1 in April 2020 and has also issued bonus shares in the ratio of 8 for 1 in the same month. The average cost of acquisition of shares by the promoters is Rs. 9.78 per share.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KIL has on a standalone basis reported turnover/net profits of Rs. 3.41 cr. / Rs. 0.06 cr. (FY18), Rs. 5.43 cr. / Rs. 0.16 cr. (FY19) and Rs. 8.15 cr. / Rs. 0.67 cr. (FY20).

On a consolidated basis, KIL has earned a net profit of Rs. 0.68 cr. on a turnover of Rs. 10.14 cr. for the financial year 2019-20. For the last three fiscals, KIL has posted an average EPS of Rs. 8.16 and an average RoNW of 69.90% (on a weighted average basis).

The issue is priced at a P/BV of around 0.23 based on its NAV of Rs. 433.95 (Rs. 437.95 on a consolidated basis) as on 31.03.2020 and at a P/BV of around 3.03 on the basis of post-issue NAV of Rs. 32.98 (Rs. 33.04 on a consolidated basis).  If we consider the latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of 21.8 making it aggressively priced offer. KIL has declared dividend at 778.9%for the financial year 2018-19.

COMPARISION WITH LISTED PEERS:
As per offer documents, KIL has shown Dev Information Techno and Innovana Thinklabs as its listed peers that are currently trading at a P/Es of around 8.91 and 10.14 (as on 22.06.20). However, they are not strictly comparable on an apple to apple basis.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 2nd mandate from its stable in the last two fiscals including the ongoing one. The only listing that took place in FY 2019-20 opened at par to its offer price on the day of listing. Thus this lead managed has no impressive track records so far.