Naapbooks BSE Startup IPO review (May apply)

•    NBL is engaged in IT solutions and the development of related apps.
•    It has posted slow growth in its top and bottom lines for the last three years.
•    Based on financial parameters, the issue is aggressively priced.
•    Small equity post IPO indicates a long duration for migration to the mainboard.
•    Comparison with IT giants as peers is surprising.

PREFACE:
GYR Capital Advisors Pvt. Ltd. is a newly born merchant banker firm started by ex-associates of Fast Track Finsec Pvt. Ltd. (which has a non-impressive track record) along with new partners.

ABOUT COMPANY:
Naapbooks Ltd. (NBL) is engaged in the business of developing and providing Information Technological solutions to corporates for their requirements. The company develops and provides Fintech App, Cloud Consulting, Blockchain App, Mobile App, Web App, Embedded App products to its clients. The services broadly cover designing, developing, operating, installing analyzing, designing, maintaining, converting, porting, debugging, coding and programming software to be used on a computer or any microprocessor-based device or any other such hardware.

The Company is also engaged in Software Consultancy services. It adheres to all necessary regulatory specifications. As of the date of filing this offer documents, it had 39 employees on the roll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 2.00 cr.), purchase of equipment (Rs. 0.50 cr.), marketing initiatives (Rs. 0.40 cr.) and general corpus funds, NBL is coming out with a maiden IPO of 539200 equity shares of Rs. 10 each via book building route to mobilize Rs. 3.99 cr. at the upper cap. The company has fixed a price band of Rs. 71 - Rs. 74 per share. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. The issue opens for subscription on September 01, 2021, and will close on September 06, 2021. Post allotment, shares will be listed on BSE Startups. The issue constitutes 29.04% of the post issue paid-up capital of the company.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd. and KFin Technologies Pvt. Ltd. is the registrar to the issue. Beeline Broking Ltd. will be the market maker for this issue.

Having issued/converted initial equity at par, the company raised further equity at Rs. 71 per share in August 2020 and September 2020. It has also issued bonus shares in the ratio of 55 for 1 in June 2020. The average cost of acquisition of shares by the promoters is Rs. 0.18, Rs. 0.80 and Rs. 6.79 per share.

Post issue, NBL's current paid-up equity capital of Rs. 1.32 cr. will stand enhanced to Rs. 1.86 cr. Based on the upper cap of IPO price, the company is looking for a market cap of Rs. 13.74 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, NBL has posted turnover/net profits of Rs. 2.21 cr. / Rs. 0.14 cr. (FY19), Rs. 2.25 cr. / Rs. 0.32 cr. (FY20) and Rs. 2.71 cr. / Rs. 0.47 cr. (FY21).

For the last three years, NBL has reported an average EPS of Rs. 4.37 and an average RoNW of 39.01%. The issue is priced at a P/BV of 4.81 based on its NAV of Rs. 15.37 as of March 31, 2021.

If we attribute FY21 earnings on post-issue fully diluted equity, then the asking price is at a P/E of 29.25 based on the upper cap. Thus the issue is aggressively priced.

COMPARISON WITH LISTED PEERS:
As per the offer documents, NBL has shown Infosys Ltd., Happiest Minds and Tech Mahindra as its listed peers. They are currently trading at a P/E of around 38.78, 136.18 and 32.08 (as of August 27, 2021). Comparison with IT giants is an eyewash to tempt investors. However, they are not truly comparable on an apple to apple basis.

DIVIDEND POLICY:
The company has not paid any dividends since incorporation. However, it will follow a prudent dividend policy post listing based on its financial performance and future prospects.

MERCHANT BANKER'S PERFORMANCE:
This is the first mandate from GYR Capital and hence has no track record. Please refer to PREFACE for more info.