Lex Nimble BSE SME IPO review (Avoid)

Lex Nimble Solutions Ltd. (LNSL) is a subsidiary of Lex Nimble Solutions Inc., USA that holds 97.81% stake in the company. The Company is engaged in business of Appraisal Advisory, Certification, training and related services on quality models, IT product and development and services, the major revenue streams being IT application, development, maintenance and support, corporate training and consulting. The Company now plans to explore new opportunities in the field of ISO certification and CMMI consulting.

To part finance its plans to foraying into CMMI consulting, customization of product simple law for the Indian Markets, establishment of an ISO certifying body and general corpus fund needs, LNSL is coming out with a maiden IPO of 1112000 equity shares of Rs. 10 each at a fixed price of Rs. 57 per share to mobilize Rs. 6.34 crore. Issue opens for subscription on 12.03.18 and will close on 16.03.18. Minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment shares will be listed on BSE SME. Issue is solely lead managed by Quintessence Enterprises Pvt Ltd and Bigshare Services Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.54% of the post issue paid up capital of the company. Average cost of acquisition by the promoters is Rs. 14.26 per share. Having issued initial equity at par, it raised further equity in the price range of Rs. 48.42 to Rs. 100.31 per share between June 2012 and October 2017. It has also issued bonus shares in the ratio of 5 for 1 in July 2017. Post Issue Company’s current paid up equity capital of Rs. 3.08 crore will stand enhanced to Rs. 4.19 crore.

On performance front, LNSL has reported turnover/net profits of Rs. 2.19 cr. / Rs. 0.11 cr. (FY14), Rs. 1.42 cr. / Rs. 0.12 cr. (FY15), Rs. 1.43 cr. / Rs. 0.12 cr. (FY16) and Rs. 1.74 cr. / Rs. 0.05 cr. (FY17). Thus while top line has seen inconsistency, bottom line has almost remained static from FY14 to FY16. In FY 17 it has posted lower net profits. For last three fiscals it has reported an average EPS of Rs. 1.86 and an average RoNW of 2% on an equity base of Rs. 0.51 crore. Issue is priced at a P/BV of 3.51 on the basis of its NAV of Rs. 16.24 as on 31.10.17 and at a P/BV of 2.47 on the basis of its post issue NAV of Rs. 23.06. For the period ended on 31.10.17 of the current fiscal, it has earned net profit of Rs. 0.12 cr. on a turnover of Rs.1.01 cr. If we annualize this earnings and attribute it on fully diluted equity post issue then asking price is at a P/E of around 114 thus issue is priced exorbitantly. As per offer documents,  its listed peers are trading at a P/E of around 28 (Excel Realty), 1071 (Intrasoft Techno) and 280 (HOV) as on 01.03.18. All these are not fully comparable as the business line is not the same. Industry composite P/E is around 22.

On merchant banker’s front, this is the 2nd mandate from its stable so far and the only listing so far of Blueblood Ventures opened at a premium of 2% on the day of listing.