Silver Touch Techno NSE SME IPO review (May apply)

Silver Touch Technologies Ltd. (STTL) is providing the Information Technology Solutions in the fields of system integration and software Services. STTL has grown with its global clientele, and now it is into multiple areas like System integration and Software Development. The Company is providing all end-to-end Information and Communication Technology (ICT) solution to its clients under a single umbrella. Initially, the primary functional areas were restricted to computer sales and maintenance. Building through a long path of more than two decades, presently Silver Touch is offering a variety of services in the field of Information Technology solutions to its clients. The Company has carried out several domestic and international Joint Ventures which have enabled the Company to expand its geographical reach and create diverse clientele. It has executed various projects in India and other countries including USA, UK, France, Australia, Middle East and Germany. STTL strives to constantly improve its software skills, adopting new and improved technologies on a regular basis to keep up with the constantly evolving world of technology. STTL is certified by ISO 9001:2008, ISO/IEC 27001: 2013, CMMI Maturity Level 5 and ISO 20000: 2011.

For listing gains, STTL is coming out with a maiden IPO of 3324000 equity shares of Rs. 10 each at a fixed price of Rs. 121 per share by way of offer for sale to mobilize Rs. 40.22 crore. Issue opens for subscription on 20.11.17 and will close on 23.11.17. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. Issue is solely lead managed by Chartered Capital & Investment Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Issue constitutes 26.39% of the post issue paid up capital of the company. From inception till 2008 it raised equity at par and in August 2017 it issued fresh equity at a price of Rs. 110 per share. It has also issued bonus shares in the ratio of 1 for 4 (March 2001), 5 for 2 (November 2007), 1 for 1 in May 2017. Being secondary issue, it’s paid up capital post issue remains same at Rs. 12.60 crore. The average cost of acquisitions of shares by promoters ranging from Rs. 3.25 to Rs. 4.35 per share.

On performance front, STTL has (on a consolidated basis) reported total revenue/net profits of Rs.109.71 cr. / Rs. 6.12 cr. (FY14), Rs.118.04 cr. / Rs. 2.61 cr. (FY15), Rs. 141.11 cr. / Rs. 3.06 cr. (FY16), Rs. 124.23 cr. / Rs. 4.05 cr. (FY17). For Q1 of current fiscal, it has posted net profit of Rs. 2.07 cr. on total revenue of Rs. 49.83 cr. It has reported an average EPS of Rs. 3.11 and average RoNW of 9.62% for last three fiscals (on an equity base of Rs. 5.60 crore). Issue is priced at a P/BV of 3.78 on the basis of post issue NAV. It suffered a setback in top line for FY17 and inconsistency in bottom lines. If we annualize latest earnings and attribute it on post issue paid up capital, then asking price is at a P/E of around 18 plus against peers trading at a P/E ranging from 4.55 to 36.93. Thus issue appears to be fully priced.

On merchant banker’s front, this is the 2nd mandate from its stable in past three years and the last listing was at par on the day it listed.

Conclusion: Risk savvy cash surplus investors may consider moderate investment in this fully priced issue for long term. (High risk – Low return).