Slone Info NSE SME IPO review (May apply)

•    SIL is in the IT/hardware solutions and related service provider.
•    With focus on high margin installation/ rental segment contracts, it posted higher bottom line for 9M-FY24.
•    The management hopes to maintain trends based on inflow of LoIs.
•    Based on FY23 annualized earnings, the issue appears fully priced, while based on FY23 earnings, its aggressively priced.
•    Well-informed investors may park moderate funds for the medium to long term rewards.

ABOUT COMPANY:
Slone Infolsystems Ltd. (SIL) is an IT hardware solutions Company, engaged in selling and renting of IT Equipment, and in providing IT Service Solutions in India. It deals in selling and renting of IT equipment like laptops, desktops, servers, work stations and also provide IT solution services like managing cloud servers, servicing of IT equipment to the corporates.

It provides custom made solutions to clients for their IT requirements. SIL procures IT equipment for clients based on the requirement of the client and then either sell or rent the IT equipment to clients based on their requirement. The company provides flexibility and advantage to acquire the requisite equipment that client needs to maximize their productivity without compromising their IT budget. In addition, the company also sells the used IT equipments to clients as per their requirements.

The company is operating in a highly competitive and fragmented segment of Sale of IT Hardware's like Laptops, Desktops, Computers/ sale of other IT related products, IT Services solutions and Rental services. As of the date of filing this offer document, the company had 8 employees on its payroll and also 6 contract employees (total 14)

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1400000 equity shares of Rs. 10 each at a fixed price of Rs. 79 per share to mobilize Rs. 11.06 cr. The issue opens for subscription on May 03, 2024, and will close on May 07, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.57% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.84 cr.  for this IPO process and from the net proceeds of the IPO, it will utilize Rs. 5.01 cr. for capex on purchase of Laptops, Desktops, SSD and RAM, Rs. 3.92 cr. for repayment/prepayment of certain borrowings, and Rs. 1.29 cr. for general corporate purposes. 

The issue is solely lead managed by Jawa Capital Services Pvt. Ltd., and KFin Technologies Ltd. is the registrar of the issue. Aftertrade Broking Pvt. Ltd. (erstwhile known as RCSPL Share Broking Pvt. Ltd.) is the market maker for the company. 

Having issued initial equity capital at par the company issued further equity capital in the price range of Rs. 80 - Rs. 90 between November 2023 and December 2023. It has also issued bonus shares in the ratio of 3 for 5 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 21.94, Rs. 83.18, and Rs. 83.69 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.87 cr. will stand enhanced to Rs. 5.27 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 41.63 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. Rs. 11.57 cr. / Rs. 0.28 cr. (FY21), Rs. 26.59 cr. / Rs. 0.38 cr. (FAY22), Rs. 30.77 cr. / Rs. 0.75 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 2.85 cr. on a total income of Rs. 34.35 cr. Thus the sudden jump in bottom lines for 9M of FY24 raise eyebrows and its sustainability going forward as the segment is highly competitive and fragmented. 

According to the management, its more thrust on high margin segments of installations and rental has increased its bottom lines for 9M-FY24 and its current ratio of 10: 90 for high margin: low margin segment will increase to 25:75 going forward as indicated by inflow of LoIs (Letter of Interests) and rising demand in the installation/rental segments.

For the last three fiscals, it has reported an average EPS of Rs. 4.05, and an average RONW of 25.75%. The issue is priced at a P/BV of 2.56 based on its NAV of Rs. 30.89 as of December 31, 2023, and at a P/BV of 1.20 based on its post-IPO NAV of Rs. 65.60 per share.

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 10.96, and on the basis of FY23 earnings, the P/E stands 55.63. Thus the issue appears aggressively priced.

While the offer document is silent on PAT margins, it has reported RoCE margins of 8.76% (FY21), 11.76% (FY22), 24.71% (FY23), 25.89% (9M-FY24) respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Brisk Techno and Benchmark Computer as their listed peers. They are trading at a P/E of 13.8 and 17.6 (as of April 26, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 1st mandate from Jawa Capital in the current fiscals, and has no track record.