Rama Tele NSE SME IPO review (May apply)

•    The company is engaged in technology driven engineering solutions provider primarily in optical fiber front.
•    It marked growth in its top and bottom lines for the reported periods.
•    The sudden boost in net margins for FY25 raises eyebrows and concern over its sustainability as it is operating in a highly competitive and fragmented segment.
•    Based on recent financial data, the issue appears fully priced.
•    Well-informed investors may park moderate funds for medium term.

ABOUT COMPANY:
Rama Telecom Ltd. (RTL) is a technology driven engineering company with expertise in optical fiber providing end to end customized networking solutions in the telecom forefront. The company focuses on developing a seamless networking infrastructure with advanced technology and sustainable methods to enhance long-term and precise connectivity across the country. Through continuous innovation, the company strives to strengthen nationwide connectivity, ensuring efficiency and reliability in its networking solutions. It focuses to leverage existing strengths to bring technology to your home and surroundings. The company continuously works upon network expansion and technology advancement. It has been providing continuous support of services to Railways, Telecom, Petroleum and Airport sector. Railways have the lion share in their top lines.

Company’s operations in the railway sector are cantered on Device-to-Device (D2D) communication, addressing the sector's specialized requirements through precise planning and execution. Raw materials are sourced from approved vendors for orders under Rs. 5 lakhs, while larger orders adhere to procurement guidelines set by railway-approved vendors. Rigorous quality control ensures that all materials meet stringent standards. Strategic logistical coordination facilitates efficient material transport and immediate deployment, supported by a flexible workforce that adapts to project needs for optimal productivity.

The company has spread itself not only in the eastern regions but handwork and dedication have helped it to expand Pan Indian level. This has facilitated RTL to acquire some of the qualified hardworking and competent talents across all levels in the country. Its hard work has rewarded with partnering with some of the best of the best brands since inception. As of March 31, 2025, it had 40 employees on its payroll and additional 41 contract workers in various departments.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3696000 equity shares of Rs. 10 each to mobilize Rs. 25.13 cr. at the upper cap. It has announced a price band of Rs. 65 – Rs. 68 per share. The issue opens for subscription on June 25, 2025, and will close on June 27, 2025. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 28% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 14.01 cr. working capital, Rs. 6.14 cr. for capex, and the rest for general corporate purposes. 

The IPO is solely lead managed by Affinity Global Capital Market Pvt. Ltd., and Cameo Corporate Services. Ltd., is the registrar to the issue. Asnani Stock Broker Pvt. Ltd. is the market maker. The issue is underwritten to the tune of 44.26% by Affinity Global Capital and 55.74% by Asnani Stock Broker.

The company has issued initial equity shares at par value, and issued further equity capital in the price range of Rs. 100 – Rs. 221 per share between March 2007, and December 2024. It has also issued bonus shares in the ratio of 58 for 1 in November 2024. The average cost of acquisition of shares by the promoters is Rs. 2.01, Rs. 2.15, Rs. 2.31, and Rs. 4.45 per share. per share. 

Post-IPO, company’s current paid-up equity capital of Rs. 9.50 cr. will stand enhanced to Rs. 13.20 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 89.76 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 33.23 cr. / Rs. 1.08 cr. (FY23), Rs. 37.48 cr. / Rs. 2.61 cr. (FY24), Rs. 42.47 cr. / Rs. 5.53 cr. (FY25). The sudden boost in its bottom lines for FY25 raise eyebrows and concern over its sustainability going forward. There appears to be some window dressing to match the asking price.

For the last three fiscals, the company has reported an average EPS of Rs. 4.04 and an average RoNW of 28.53%. The issue is priced at a P/BV of 3.91 based on its NAV of Rs. 17.41 as of March 31, 2025, and at a P/BV of 0.93 based on its post-IPO NAV of Rs. 73.27 per share (at the upper cap).

If we attribute FY25 super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 16.23. Based on FY24 earnings, the P/E stands at 34.34. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 3.27% (FY23), 7.02% (FY24), 13.24%, (FY25), and RoCE margins of 18.73%, 29.33%, 37.06%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid 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.

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown SAR Televenture, as its listed peers. It is trading at a P/E of 23.8 (as of June 23, 2025), However, they are not truly comparable on an apple-to-apple basis. This compare appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 5th mandate from Affinity Global Capital in the last three fiscals including the ongoing one.  From the last 4 listings, 1 listed at par and the rest with a premium ranging from 18.18% to 51.79%, on the listing date.