Paramatrix Techno NSE SME IPO review (May apply)

•    The company is engaged in providing IT solutions, which is a highly competitive and fragmented segment.
•    The company posted inconsistency in its financial performance with declining margins.
•    Based on FY24 earnings, the issue appears aggressively priced. 
•    Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
Paramatrix Technologies Ltd. (PTL) is a IT Software Services Company, focusing on making software applications and technology solutions for large enterprises and mid-size businesses. Its core competency lies in understanding clients' unique business processes, culture and their requirements across diverse industry segments and creating software applications and technology solutions, which works as an accelerator to enhance their operational efficiency and foster increased value production.

It has successfully served clients in BFSI sector, Retail, Manufacturing, Sports, Pharmaceuticals, and Logistics. Paramatrix, backed by its promoters and employees, possesses extensive knowledge and expertise in Digital Transformation, development of software applications & implementation of technology solutions, covering various platforms and frameworks such as Microsoft.Net, Microsoft SQL, Microsoft Azure Cloud, AWS Cloud, Cross-Platform Mobile Application Development Technologies, Open-Source Technologies (Java, Python etc) and more. To serve customers better, Paramatrix has aligned and categorized Digital Transformation Services and Managed Services as its two focused service line pillars. With a unique blend of domain knowledge, technological expertise, and project management proficiency, PTL is well-equipped to execute projects successfully. As of July 31, 2024, it had 209 employees on its payroll. Additionally, it has 7 consultants working on contractual terms.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of 3076800 equity shares of Rs. 10 each at a fixed price of Rs.  110 per share to mobilize Rs. 33.85 cr. The issue opens for subscription on August 27, 2024, and will close on August 30, 2024. The issue constitutes 2758800 fresh equity shares worth Rs. 30.35 cr. and an OFS (Offer for Sale) of 318000 shares worth Rs. 3.50 cr.  The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.73% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.10 cr. for fresh equity issue process, and from the net proceeds, it will utilize Rs. 9.40 cr. for capex on infrastructure, Rs. 6.53 cr. for investment in enhancing its service offerings, Rs. 6.15 cr. for expansion in Middle East and East Asia, and Rs. 7.17 cr. - fresh issue for general corporate purposes. 

The issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. SVCM Securities Pvt. Ltd. is the market maker for the company. The issue is underwritten to the tune of 15.02% by Inventure Merchant and 84.98% by SVCM Securities.

The company has issued entire initial equity shares at par value so far and has also issued bonus shares in the ratio of 1 for 1 in March 2006, 2 for 1 in September 2010, and 24 for 1 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL per share. 

Post-IPO, company's current paid-up equity capital of Rs. 8.75 cr. will stand enhanced to Rs. 11.51 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 126.60 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 28.25 cr. / Rs. 6.79 cr. (FY22), Rs. 33.32 cr. / Rs. 7.08 cr. (FY23), Rs. 28.60 cr. / Rs. 4.13 cr. (FY24). It posted inconsistency in its performances for the reported periods with declining margins.

For the last three fiscals, it has reported an average EPS of Rs. 6.35, and an average RoNW of 19.31%. The issue is priced at a P/BV of 3.18 based on its NAV of Rs. 34.63 as of March 31, 2024, and at a P/BV of 2.09 based on its post-IPO NAV of Rs. 52.70 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 30.64. Thus the issue appears aggressively priced. 

For the reported periods, the company has posted PAT margins of 24.04% (FY22), 21.23% (FY23), 14.45% (FY24), and RoCE margins of 35.87%, 30.51%, 17.29% respectively for the referred periods. 

DIVIDEND POLICY:
The company has paid a dividend of 860% (FY22), 570% (FY23), 570% (interim) + 22.80% (Final) for (FY24). 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 All E Tech., Softsol, and K Solves as their listed peers. They are trading at a P/E of 44.0, 25.9 and 34.4 (as of August 23, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 12th mandate from Inventure Merchant in the last four fiscals (including the ongoing one), out of the last 10 listings, 2 opened at discount, 1 at par and the rest listed with premiums ranging from 0.45% to 90% on the date of listing.