Steelman Telecom BSE SME IPO review (Avoid)

•    STL is engaged in providing support services and solutions for telecom networking.
•    Based on FY22 earnings, the issue appears aggressively priced. 
•    It is operating in a highly competitive and fragmented segment. 
•    There is no harm in skipping this pricy issue. 

ABOUT COMPANY:
Steelman Telecom Ltd. (STL) was primarily established as a hospitality company. It changed its name to the current one and is at present offering support services and solutions to telecom networking. 

STL provides services for Network Survey and Planning, Installation and Commissioning, Network Testing and Optimization, Network Solutions, and Managed Services for network maintenance. As of March 31, 2022, it had a task force of 1983 employees. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for the investment in subsidiary (Rs. 5.00 cr.), working capital (Rs. 8.00 cr.), and general corporate purposes (Rs. 4.10 cr.), STL is coming out with a maiden IPO of 2710800 equity shares of Rs. 10 each at a fixed price of Rs. 96 per share to mobilize Rs. 26.02 cr. It is a combo of 1897200 fresh equity shares and an offer for sale (OFS) of 813600 shares. The issue opens for subscription on September 26, 2022, and will close on September 29, 2022. The minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.02% of the post-IPO paid-up equity capital of the company. STL is spending Rs. 1.55 cr. (including Rs. 1.11 cr. for fresh equity issue) for this IPO process.

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

After issuing initial equity shares at par, the company issued further equity in the price range of Rs. 20.00 to Rs. 500.00 per share between March 2004 and May 2022. It has also issued bonus shares in the ratio of 11 for 1 in March 2019 and 1 for 2 in June 2022. The average cost of acquisition of shares by the promoters is Rs. 0.12 per share. 

Post this IPO, STL's paid-up equity capital of Rs. 7.78 cr. will stand enhanced to Rs. 9.68 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 92.89 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, STL has (on a consolidated basis) reported a turnover/net profit - (Loss) of Rs. 87.95 cr. / Rs. - (0.23) cr. (FY20), Rs. 90.16 cr. / Rs. 1.38 cr. (FY21), and Rs. 101.16 cr. / Rs. 3.97 cr. (FY22). 

For the last three fiscals, STL has posted an average EPS of Rs. 3.17 and an average RoNW of 16.48%. The issue is priced at a P/BV of 3.11 based on its NAV of Rs. 30.90 as of March 31, 2022, and at a P/BV of 2.72 based on its post-IPO NAV of Rs. 35.27 per share. 

If we attribute FY22 earnings on post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 23.41. Thus the issue is aggressively priced. 

COMPARISON WITH LISTED PEERS:
As per the offer documents, STL has shown HFCL and Indus Tower as their listed peers. They are currently quoting at a P/E of 41.40, and 9.79 (as of September 22, 2022).  However, they are not truly comparable on an apple-to-apple basis. 

DIVIDEND POLICY:
The company has not declared/paid any dividend since incorporation. 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 11th mandate from Gretex Corporate 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 0.47% to 29.63% on the day of listing.