SAR Tele NSE SME IPO review (Apply)

•    STL is in the business of telecom infrastructure company providing towers for 4G/5G telecom network.
•    Its operations are spread in India and neighboring countries. 
•    The company posted growing performance for the last 15 months' period.
•    Based on FY24 annualized earnings the issue appears reasonably priced. 
•    Investors may park funds for the medium to long-term rewards. 

ABOUT COMPANY:
SAR Televentures Ltd. (STL) is registered as Infrastructure Provider Category-I (IP-I) with Department of Telecommunication (DOT) which permits it to lease out own build sites i.e. GBT/RTT/Pole sites and Out Door Small Cell (ODSC) and establish and maintain assets such as Dark Fibres, Right of Way, Duct Space and Tower for the purpose to grant on lease or rent or sale basis to the licensees of Telecom Services. It also provided support services such as includes project management for laying of the duct and optic fibre cables, construction of basic transmission and telecom utilities, dark fiber leasing, optical fiber network construction, maintenance of duct and optic fibre and optical fibre project turnkey services to various, Telecom Network Operators & Broad Band Service Operators and ISPs across Maharashtra. 

The Company has already installed and commissioned 125, 108 and 140 number of towers for the year 2020-21, 2021-22 and 2022- 23 respectively. STL is a passive telecommunication infrastructure provider in India, engaged primarily in the business of installing and commissioning telecom towers in India. "Passive infrastructure" refers to the telecommunication towers for wireless telecommunication services and Optical Fibre Cable (OFC) is used for the purpose of hosting and assisting in the operation of the active infrastructure used for transmitting telecommunications signals or transporting voice and data traffic. With its quality, cost-effective and time bound services, the company gained presence in the Industry as a Telecom Service Provider (TSP) Vendor. It has provided an aggregate 373 number of towers on lease over various areas in West Bengal, Bihar, Uttar Pradesh and Punjab.

On January 03, 2023, the Company has entered into Share Purchase agreement to acquire 100% of the issued and paid-up equity share capital of SAR Televenture FZE, United Arab Emirates (Formerly known as Shoora International -FZE) from Shoora Capital Limited. Currently its subsidiary is engaged in the activities of (i) Wholesale of Fresh Foodstuff Trading -Import & Export (ii) Ferrous and Non Ferrous Metal Trading Import & Export; (iii) Wireless Communication Devices and Equipment Trading; and (iv) Electronic Chips & Semiconductors trading Import/Export. Its subsidiary contributed to an about 91.08% and 80.19% of its consolidated revenue from operations as on June 30, 2023 and March 31, 2023. STL derives a significant portion of consolidated revenue as on June 30, 2023 and as on March 31, 2023 from the business of Subsidiary Company. As of September 30, 2023, it had 38 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 4500000 equity shares of Rs. 2 each via book building route. It has announced a price band of Rs. 52 - Rs. 55 per share and mulls mobilizing Rs. 24.75 cr. at the upper cap. The issue opens for subscription on November 01, 2023, and will close on November 03, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 30% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 12.39 cr. for 4G/5G tower installations, 0.79 cr. for repayment/prepayment of certain borrowings, Rs. 4.50 cr. for working capital and the rest for general corporate purposes. 

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. R K Stock Holding Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued/converted further equity shares at a fixed price of Rs. 135 per share between March 2023 and June 2023. The average cost of acquisition of shares by the promoters is Rs. 27.00 per share. 

Post-IPO, its current paid-up equity capital of Rs. 2.10 cr. will stand enhanced to Rs. Rs. 3 cr. Based on the upper band of IPO price, the company is looking for a market cap of Rs. 82.50 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, STL has posted a total income/net profit/ - (loss) of Rs. 0.91 cr. / Rs. - (0.03) cr. (FY21), Rs. 4.75 cr. / Rs. 0.04 cr. (FY22), Rs. 32.52 cr. / Rs. 3.88 cr. (fY23). For Q1 of FY24 ended on June 30, 2023, it earned a net profit of Rs. 1.92 cr. on a total income of Rs. 17.35 cr. 

The last 15 months working indicates the trends of the segment and prospects ahead as all cell companies are gearing to expand their 4G and 5G operations with launch of mobile towers. The list includes VIL, Airtel, BSNL etc. According to the management, they have global and domestic operations in this segment which has tremendous opportunities. Rising contracts for AMC are the added advantage. 

For the last three fiscals, the company has reported an average EPS of Rs. 45.85, and an average RoNW of - (3.41) %. The issue is priced at a P/BV of 1.74 based on its NAV of Rs. 31.66 as of June 30, 2023. The IPO price band ad is missing data of its post-IPO NAV on lower and upper cap. 

If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.72. Thus the issue appears reasonably priced. 

The company has posted PAT margins of - (2.99) % (FY21), 0.78% (FY22), 11.94% (FY23), and 11.09% (Q1-FY24). 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has adopted a dividend distribution policy in July 2023 based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Suyog Telematics and Kore Digital as their listed peers. They are trading at a P/E of 17.4 and 32.06 (as of October 27, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is 10th mandate from Pantomath Capital in the last three fiscals. Out of the last 8 listings, all listed with premiums ranging from 5.00% to 82.78% on the day of listing.