Sodhani Academy BSE SME IPO review (Avoid)

•    The company is providing training, consultancy and learning services in financial literacy and awareness segment. 
•    It posted minuscule top lines for the reported periods with exaggerated profits to fetch fancy valuations.
•    It is operating in a highly competitive and fragmented segment.
•    Though the IPO appears lucratively priced based on FY24 super earnings, it is a "High Risk/Low Return" bet. 
•    There is no harm in skipping such risky issues.

ABOUT COMPANY:
Sodhani Academi of Fintech Enablers Ltd. (SAFEL) was originally incorporated as Sodhani Financial Consultants Pvt. Ltd. And was rechristened as Sodhani Financial Consultants Ltd. In February 2009 and subsequently it was changed to the current one in May 2023.  

The company is engaged in the business of providing training, consultancy and learning services. Its focus area of service delivery has been under the domain of financial literacy and awareness. Financial literacy and awareness domain broadly refers to the knowledge and understanding of various financial concepts and skills that enable learners to make informed and responsible decisions regarding financial matters. It encompasses the ability to manage money effectively, budget wisely, save and invest prudently, and comprehend basic financial products and services.

According to the company, a strong foundation in financial literacy empowers learners to navigate the complexities of the financial world, make sound financial choices, and plan for their future financial well-being. Its training, consultancy and learning services have majorly been focused in the areas of financial planning, fundamental analysis, technical analysis, basics of stock market and retirement planning. It identified the opportunity in the business domain of training, consultancy and learning around the end of year 2020. Accordingly, the company initiated the development of content, trainers and supportive delivery infrastructure.

The year 2021 was largely the initial year of operation in the domain of training and learning solutions under financial literacy, hence the revenues were at nascent stage.

As of the date of this offer document, it had 9 full time employees on its payroll and 7 full time expert trainers under professional engagement model. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1530000 equity shares of Rs. 10 each at a fixed price of Rs. 40 per share to mobilize Rs. 6.12 cr. The issue consists of 970000 fresh equity shares worth Rs. 3.88 cr.  and an Offer for Sale (OFS) of 560000 equity shares worth Rs. 2.24 cr. The issue opens for subscription on September 12, 2024, and will close on September 17 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.87% of the post-IPO paid up equity capital of the company. The company is spending Rs. 0.78 cr. and from the net proceeds, it will utilize Rs. 0.80 cr. for building content studio and offline training infra, Rs. 0.60 cr. for IT, Rs. 0.50 cr. for content development for course material, 0.35 cr. for brand visibility and awareness, Rs. 0.10 cr.  for Learning Management System, and Rs. 0.75 cr. for general corporate purposes. OFS in a tiny IPO also raise eyebrows.

The issue is solely lead managed by Srujan Alpha Capital Advisors LLP, and Cameo Corporate Services Ltd. Is the registrar to the issue, while Prabhat Financial Services Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 60 - Rs. 85 per share between June 2009 and February 2022. It has also issued bonus shares in the ration of 4 for 1 in July 2022, and 2.5 for 1 in June 2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.54, Rs. 4.61, and Rs. 4.65 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 4.73 cr. will stand enhanced to Rs. 5.70 cr. Based on the IPO pricing, the company is looking for a market cap of Rs.  22.78 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 1.88 cr. / Rs. 1.24 cr. (FY22), Rs. 2.04 cr. / Rs. 1.39 cr. (FY23), and Rs. 3.07 cr. / Rs. 1.83 cr. (FY24). Thus it has presented minuscule top line with surging profits that not only raises eyebrows, but also about sustaining such margins going forward. 

For the last three fiscals, the company has posted an average EPS of 4.66 and an average RoNW of 29.80%. The issue is priced at a P/BV of 2.88 based on its NAV of Rs. 13.89 as of March 31, 2024, and at a P/BV of 2.44 based on its posts-IPO NAV of Rs. 16.41 per share. 

If we attribute FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 12.42. The issue relatively appears lucratively priced. 

For the reported periods, the company has posted PAT margins of 66.66% (FY22), 101.32% (FY23), 89.32% (FY24), and RoCE margins of 51.27%, 36.79%, 36.77% 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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Srujan Alpha in the last four fiscals (including the ongoing one). Out of the last 3 listings, 1 opened at discount and the rest with premiums ranging from 1.25% to 7.07% on the date of listing.