Silicon Rental BSE SME IPO review (May apply)

•    SRSL is an IT equipment outsourcing company giving related services to clients.
•    It has posted growth in its top and bottom lines. 
•    Super earnings for FY22 raise eyebrows and concern over sustainability.
•    Based on FY22 earnings, the issue appears fully priced. 
•    Risk seeker/cash surplus investors may consider investment for the medium to long-term.

ABOUT COMPANY:
Silicon Rental Solutions Ltd. (SRSL) is an IT equipment outsourcing company, engaged in providing end-to-end IT equipment on a rental and returnable basis in India. It provides laptops, desktops, printers, servers, and other peripherals like CCTV cameras, projectors, storage devices, etc. on a rental basis mainly to small, medium, and large corporate. Based on the client's IT requirements, SRSL offers them tailor-made rental schemes that suit their requirements. 

By providing IT rental services to customers the company also provides them with the flexibility and advantage to acquire the requisite equipment that they need to maximize their productivity without compromising their IT budget. In addition, SRSL also sells used IT equipment to clients as per their requirements. In Fiscal 2022, revenue generated from rental services and the sale of used IT equipment represented 92.81% and 7.19% of the total revenue in such period, respectively. As of July 31, 2022, it had 27 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for Capex for IT equipment (Rs. 8.55 cr.), repayment/prepayment of certain borrowings (Rs. 8.50 cr.), and general corporate purposes (Rs. 2.58 cr.), SRSL is coming out with a maiden IPO of 2712000 equity shares of Rs. 10 each at a fixed price of Rs. 78 per share to mobilize Rs. 21.15 cr. The issue opens for subscription on September 28, 2022, and will close on September 30, 2022. The 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 26.40% of the post-IPO paid-up equity capital of the company. SRSL is spending Rs. 1.52 cr. for this IPO process. This indicates the fully structured nature of the IPO. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Hem Securities Ltd. is also the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at a fixed price of Rs. 82 per share in April 2022. It has also issued bonus shares in the ratio of 44 for 10 in July 2022. The average cost of acquisition of shares by the promoters is Rs. 1.85 and Rs. 8.54 per share. 

Post this IPO, SRSL's paid-up equity capital of Rs. 7.56 cr. will stand enhanced to Rs. 10.27 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 80.12 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SRSL has reported a turnover/net profit of Rs. 12.28 cr. / Rs. 2.16 cr. (FY20), Rs. 13.76 cr. / Rs. 2.70 cr. (FY21), and Rs. 24.68 cr. / Rs. 7.47 cr. (FY22). Thus it has marked growth in its top and bottom lines. Margins reported for the last fiscal raises concern about sustainability going forward.

For the last three fiscals, SRSL has posted an average EPS of Rs. 8.46 and an average RoNW of 39.00%. The issue is priced at a P/BV of 2.75 based on its NAV of Rs. 28.40 as of March 31, 2022, and at a P/BV of 2.10 based on its post-IPO NAV of Rs. 37.13 per share. 

If we attribute FY22 super earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 10.73. Thus the issue appears fully priced. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, SRSL has no listed peers to compare with.

DIVIDEND POLICY:
The company has not declared/paid any dividend for the reported periods of the offer document. It will adopt a prudent dividend policy post IPO, based on its financial performance and future prospects. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Hem Securities in the last three fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount and the rest with premiums ranging from 1.47% to 104.87% on the day of listing.