Rithwik Facility BSE SME IPO review (Avoid)

Rithwik Facility Management Services Ltd. (RFMS) is engaged in the business of integrated facilities & property management and equipment & assets management. It is also engaged in the business of billing management including raising of maintenance and energy invoices and managing collections of its clients. RFMS offers services to various clients who include various corporate and developers. Company is having headquartered in Mumbai and providing services in Chennai and Coimbatore. Over the period it has raised the scope of its offerings by taking care of both facilities and assets enabling clients to concentrate on their core business. The company always strives to utilize new technologies and process, which allows it to reduce operation costs and improve life cycles of equipment and property. Now the company mulls expanding its operations in Madurai and Bengaluru.

To part finance its working capital and general corpus fund needs, RFMS is coming out with a maiden IPO of 810000 equity shares of Rs. 10 each at a fixed price of Rs. 50 per share to mobilize Rs. 4.05 crore. Issue opens for subscription on 29.12.17 and will close on 03.01.18. Minimum application is to be made for 3000 shares and in multiples thereon, thereafter. Issue constitutes 26.47% of the post issue paid up capital of the company. Issue is solely lead managed by Inventure Merchant Banker Services Pvt. Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue. Having issued initial equity at par, it raised further equity at a price of Rs. 75 per share in June 2017. It has also issued bonus shares in the ratio of 89 for 1 in March 2017 and 1 for 2 in June 2017. Post issue its current paid up capital of Rs. 2.25 crore will stand enhanced to Rs. 3.06 crore. Post allotment, shares will be listed on BSE SME. The average cost of acquisition of shares by the promoters is Rs. 11.11 and Rs. 42.86 per share.

On performance front, RFMS has posted revenue/net profits of Rs. 21.61 cr. / Rs. 0.45 cr. (FY15), Rs. 23.90 cr. / Rs. 0.34 cr. (FY16) and Rs. 21.49 cr. / Rs. 0.64 cr. (FY17). Thus while its top line has remained almost static, its bottom line has shown surge in last fiscal, that is surprising. For first quarter of the current fiscal, it has reported net profit of Rs. 0.06 cr. on revenue of Rs. 5.52 cr. For last three fiscals it has posted an average EPS of Rs. 3.76 and average RoNW of 29.40 on an equity base of Rs. 0.90 crore as at 31.03.17. Issue is priced at a P/BV of 1.68 on the basis of its NAV of Rs. 29.67 as on 30.06.17 and at a P/BV of 1.43 on the basis of its NAV of Rs. 35.05 post issue. If we annualize latest earnings and attribute it on fully diluted equity post issue, then asking price is at a P/E of around 64 plus against its peer trading at a P/ E of around 18 (as on 14.12.17 as per info on page 61 of offer documents). Post Issue Company’s paid up equity will be up 2.7 times. Issue pricing appears exorbitant compared to its earnings.

On merchant banker’s front, this is the 5th mandate from its stable in past three years. Out of last four listings one opened at par and the rest at a premium of 1.5% to 20% and closed on the same day just around par levels or at discount.

Conclusion: Considering high price, investors may give this issue a miss. (Avoid).