Pune E-Stock BSE SME IPO review (Apply)

•    PESB is in the field of financial services with broking business and entering into other finance related servicing. 
•    It marked inconsistency in its financial performance for FY21 to FY23.
•    Based on FY24 annualized super earnings, the issue appears fully priced. 
•    Investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Pune E-Stock Broking Ltd. (PESB) is in the field of financial services, and is known for its significant presence and achievements. Founded in 2007, Pune E - Stock Broking Limited (PESB) embarked on a remarkable journey that has been characterized by a series of strategic amalgamations, pioneering IT initiatives, and an unwavering commitment to expanding its reach and influence within the financial services sector. This comprehensive profile provides a detailed exploration of the pivotal milestones that have not only defined PESB's extraordinary trajectory over the years but have also contributed to its enduring success.

The Company primarily offers platform to its clients for execution of trades (Equity, Futures & Options, Currency, and Commodity) with the Stock Exchange (NSE, BSE, MCX) through CTCL (Computer to Computer Link) Terminals, Web Interface & Mobile App (Android & iOS). Company's client base includes Authorized Persons (spread across 10+ Cities) as well as Direct Clients. Total count of client was 60,640 as of March 2023. The company has 2 branch offices in Ahmedabad & Delhi. 

Company's business from Authorized Persons (AP) involves registration of the AP as per the requirements of SEBI & Stock Exchanges. The AP brings clients by offering all the required services like account opening, KYC, trade execution, query resolution & client servicing at his own costs. AP decides the amount of brokerage to be charged for the clients during the account opening process & based on the defined slab rates, brokerage gets charged to client at every trade. PESB retains a fixed portion of that brokerage for offering the infrastructure & back-end support. Thus, collection of all the brokerage is done by PESB accounted as Revenue from operations & it disburses the sub-brokerage on a monthly basis to the APs accounted as Expenses.

Throughout its journey, PESB has continuously adapted to the evolving financial landscape, embracing change and innovation to meet the diverse needs of its clients and stakeholders. The company's business operations have not only expanded but have also demonstrated a robust capability to navigate complexities, thereby enabling consistent growth and enhancing its future prospects.

Along with stock broking services, company also offers ancillary services like Margin Trading Facility, Depository Accounts, Fixed Deposit & Mutual Fund Distribution. Company is also engaged in proprietary trading which is currently 0.1% of total turnover of the company & Algorithm based trading, whereby company needs to have margin from the exchanges in F&O segment which requires company to place its fund as collateral in the form of Fixed Deposits with the exchanges. Banks provide double exposure against such Fixed Deposits created with the Banks.

At the heart of PESB's success lies its unwavering commitment to technological innovation. The company has consistently leveraged cutting-edge technology to enhance client experiences and streamline internal processes. The introduction of internet based trading (IBT) revolutionized how clients engage with the market. It brought convenience and accessibility to the forefront, allowing clients to trade seamlessly from the comfort of their homes or offices. This move not only met the changing needs of clients but also positioned PESB as an industry leader in adopting digital solutions. PESB's user-friendly Trading App further exemplified its dedication to technological innovation. The app provided clients with a powerful tool to manage their investments, stay updated on market trends, and execute trades on the go. 

The intuitive interface and real-time data access transformed the way clients interacted with their investments. PESB Trading App is a smart & secured trading platform for Android devices which provides seamless trading experience in stock & commodities. It introduces Smart Back Office app - a very easy & convenient that lets one to keep updated with live market. One can access anytime from anywhere to check Ledger Balance, Stock Status, Open Position, Bill Details on one touch of finger. As of September 30, 2023, it had 79 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4606400 equity shares of Rs. 10 each to mobilize Rs. 38.23 cr. (at the upper cap of the price band). The company has announced a price band of Rs. 78 - Rs. 83 per share. The issue opens for subscription on March 07, 2024, and will close on March 12, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 29.43% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 35.00 cr. for working capital, and Rs. 0.20 cr. for general corporate purposes. 

The issue is solely lead managed by Share India Capital Services Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Share India group's Share India Securities Ltd. is the market maker for the company. 

The company has issued initial equity capital at par and has issued further equity shares at a fixed price of Rs. 33.70 in February 2016. The average cost of acquisition of shares by the promoters is Rs. 6.67, Rs. 12.56, Rs. 13.28, Rs. 14.28, and Rs. 21.24 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.05 cr. will stand enhanced to Rs. 15.65 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 129.90 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. 34.75 cr. / Rs. 6.51 cr. (FY21), Rs. 46.66 cr. / Rs. 10.12 cr. (FY22), and Rs. 41.03 cr. / Rs. 9.65 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 6.11 cr. on a total income of Rs. 30.11 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 7.81, and an average RONW of 13.16%. The issue is priced at a P/BV of 1.11 based on its NAV of Rs. 74.79 as of September 30, 2023.  IPO price band ad is missing its post-IPO NAV data on the upper and lower cap. 

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 10.64. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 19.98% (FY21), 24.54% (FY22), 26.98% (FY23), 22.90% (H1-FY24), and RoCE margins of 14.54%, 15.79%, 14.77%, 8.25% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Share India Securities, ICICI Securities, and Angel One, as their listed peers. They are trading at a P/E of 16.4, 18.8, and 22.6 (as of March 02, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Share India Capital in the last four fiscals, out of the last 10 listings, 4 opened at par and the rest with premiums ranging from 1.82% to 118.52% on the listing date. There is a mismatch in Annexure A details of the merchant banker (see pages 213 - 214 of the RHP).