Shantidoot Infra BSE SME IPO review (Avoid)

•    SISL claims to be a specialized construction service provider.
•    After posting dismal performance for FY20 and FY21, it marked super earnings for FY22.
•    Improved earnings in pre-IPO year raise doubt about window dressing.
•    Based on such super earnings, the issue is fully priced. 
•    There is no harm in skipping this pricy bet. 

ABOUT COMPANY:
Shantidoot Infra Services Ltd. (SISL) is a specialized construction services provider for the education, healthcare, and hospitality sectors.  Thus it is mainly engaged the in construction of institutional buildings like schools, colleges, hospitals, offices, hotels, etc. 

In a short span of three years, it has evolved and grown exponentially into an initiative with a progressive outlook and technically sound professional approach. The company strives to provide innovative, integrated, and satisfactory customized solutions to clients as per their specific needs. SISL is positioned as a highly professional, reliable, safe, prompt & quality service provider in the infrastructure service arena.

As of June 30, 2022, it has 9 employees on its payroll. During construction activities, it higher required contractual labour from time to time. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 1.32 cr.) and general corporate purposes (Rs. 0.42 cr.), SISL is coming out with a maiden combo IPO of fresh equity issue worth Rs. 2.01 cr. and an equal size Offer for Sale (OFS) to mobilize Rs. 4.02 cr. The company will issue 248000 fresh equity shares of Rs. 10 each at a fixed price of Rs. 81 per share and also 248000 equity shares at the same price as an OFS. Thus the company is issuing 496000 equity shares. It opens for subscription on September 06, 2022, and will close on September 09, 2022. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 27.59% of the post-issue paid-up capital of the company. SISL is spending Rs. 0.43 cr. for this IPO process including Rs. 0.27 cr. for the fresh issue. 

The issue is solely lead managed by Gretex Corporate Services Ltd. and Bigshare Services Pvt. Ltd. is the registrar to the issue.  Gretex group company Gretex Share Broking Pvt. Ltd. is the market maker for this company. 

The company has issued its entire equity capital at par so far and has also issued bonus shares in the ratio of 30 for 1 in July 2022 and has thus emptied the coffers. The average cost of acquisition of shares by the promoters is Rs. 0.38 per share. 

Post IPO, SSIL's current paid-up equity capital of Rs. 1.55 cr. will stand enhanced to Rs. 1.80 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 14.56 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SISL has reported turnover/net profits of Rs. 2.19 cr. / Rs. 0.03 cr. (FY20), Rs. 4.16 cr. / Rs. 0.09 cr. (FY21) and Rs. 7.62 cr. / Rs. 1.40 cr. (FY22). The sudden boost in the bottom line for FY22 indicates some window dressing in a pre-IPO year. This super profit has helped the company with a liberal bonus share issue to the promoters. The sustainability of such profits going forward is a major concern. 

For the last three fiscals, SISL has posted an average EPS of Rs. 4.74 and an average RoNW of 68.19% (with the help of super profits of FY22). The issue is priced at a P/BV of 0.26 based on its NAV of Rs. 313.47 (pre-bonus value) and at a P/BV of 4.07 based on its post-IPO NAV of Rs. 19.89. 

If we attribute super profits of FY22 on post-IPO equity capital, then the asking price is at a P/E of 10.37 and on the basis of the last three fiscal average EPS, it is at a P/E of 17.09. Thus the issue is fully priced. 

COMPARISON WITH LISTED PEERS:
As per the offer document, SISL has shown Samor Realty, B-Right Real, Jaiprakash Associates, and Ashoka Buildcon as its listed peers. They are currently trading at a P/E of 293.27, 297.73, 00, and 5.55 (as of September 02, 2022). However, they are not truly comparable on an apple-to-apple basis. While recently listed Samor and B-Right counters are witnessing rigging operations, giants like Jaiprakash and Ashoka are legging behind. 

DIVIDEND POLICY:
The company has not declared/paid any dividend since its inception. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 11th mandate from Gretex Corporate in the last three fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at a discount and the rest with premiums ranging between 0.5% to 21.89% on the day of listing.