Net Avenue NSE SME IPO review (May apply)

•    NATL is engaged in online digital D2C business for Indian Ethnic wear and accessories.
•    Though it marked growth in its top lines for the reported periods, it posted inconsistency in net earnings. 
•    Based on FY24 super annual earnings, the issue appears fully priced. 
•    It operates in a highly competitive and fragmented segment. 
•    Well-informed investors may park moderate fund for the medium to long term rewards. 

ABOUT COMPANY:
Net Avenue Technologies Ltd. (NATL) is engaged in online digital direct-to-consumer business for Indian Ethnic wear and accessories. The company also has presence in International cross-border e-commerce direct-to-consumer for its products. Its product range includes Indian ethnic wear and accessories for women, men, teens and kids.

NATL's core business sells Indian Ethnic wear and accessories, primarily catering to the South Asian Diaspora, a segment it reaches through its website and mobile applications. Furthermore, it extends reach by distributing products through various prominent Ecommerce platforms, including but not limited to Myntra, Nykaa, and Ajio, among others.

It specializes in selling Indian Ethnic wear, catering primarily to the South Asian Diaspora through its websites, cbazaar.com and ethnovog.com. Company's direct-to-consumer approach serves customers from many countries, with the United States, United Kingdom, Australia, and Canada being its primary markets. As of August 31, 2023, it had 85 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book building route IPO of 5696000 shares of Re. 1 each and has announced a price band of Rs. 16 - Rs. 18 per share. It mulls mobilizing Rs. 10.26 cr. at the upper cap. The issue opens for subscription on November 30, 2023, and will close on December 04, 2023. The minimum application to be made is for 8000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.55% of the post-IPO paid-up capital of the company. 

From the net proceeds of the IPO funds, it will utilize Rs. 6.99 cr. for customer acquisition - marketing and awareness expenses, Rs. 1.20 cr. for working capital and the rest for general corporate purposes. After reserving 288000 shares for the market maker, the company has allocated net portion of the IPO as - not more than 50% to QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

The issue is solely lead managed by Shreni shares Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. Shreni Shares Ltd. is also the market maker for the company. 

Having issued/converted initial equity shares at par, the company allotted further equity shares in the price range of Rs. 233 - Rs. 468.65 per share (on the basis of FV of Re. 1 each) between April 2012 - December 2014. It has also issued bonus shares in the ratio of 6 for 1 in August 2023. The average cost of acquisition of shares by the promoters is Rs. 0.12, and Rs. 0.14 per share. 

Post-IPO, NATL's current paid-up equity capital of Rs. 1.58 cr. will stand enhanced to Rs. 2.15 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 38.62 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, NATL has (on a consolidated basis) posted a total revenue/net profit of Rs. 14.48 cr. / Rs. 0.23 cr. (FY21), Rs. 32.76 cr. / Rs. 2.62 cr. (FY22), and Rs. 34.51 cr. / Rs. 1.76 cr. (FY23). For Q1 of FY24, it earned a net profit of Rs. 0.94 cr. on a total revenue of Rs. 7.84 cr. 

For the last three fiscals NATL has reported an average EPS of Rs. 1.90 and an average RoNW of 240.84%. The issue is priced at a P/BV of 0.66 based on its NAV of Rs. 27.39 as of September 30, 2023, and at a P/BV of 2.85 based on post-IPO NAV of Rs. 6.31 per share (at the upper cap).

If we attribute consolidated super FY24 annualized earnings to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.23. The issue appears fully priced.

For the reported periods of the offer document, the company has posted PAT margins of 1.88% (FY21), 8.95% (FY22), 5.55% (FY23), 10.33% (Q1-FY24).

DIVIDEND POLICY:
The company has not declared any dividends in the last five years. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Nandani Creations as their listed peer. It is trading at a P/E of NA (as of November 24, 2023). However, it is not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 25th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 listed at a discount and the rest listed at premiums ranging from 2.74% to 143.24% on the day of listing.