Supreme Facility NSE SME IPO review (Apply)

•    The company is B2B focused integrated business services provider.
•    It posted steady growth in its top and bottom lines for the reported periods. 
•    The company enjoys good long term relationship and repeat contracts from clients like Tata Motors, Bajaj Group, Mercedes, Infosys etc.
•    Based on FY25 annualized earnings, the issue appears fully priced. 
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Supreme Facility Management Ltd. (PUSL) is an integrated business services provider focused in offering Integrated Facility Management ("IFM") services and other Support Services ("Support Services") to industries across multiple sectors. Its IFM service portfolio broadly includes (i) soft services such as housekeeping and cleaning services, disinfecting and sanitizing services, pest control, horticulture, and facade cleaning; (ii) hard service such as maintenance, repair, overhaul and performance management of electrical, plumbing and maintenance services (iii) Staffing Service where it supply the workforce for various support service; its Other Support Services portfolio broadly includes (i) Employee Transportation ("ET") services whereby the company provides transportation services for the employees of clients; (ii) Corporate Food Solution Services ("CFSS") whereby it offers catering services for employees of corporate clients; (iii) Supply Chain Management Services ("SCM") whereby it provides Third-party logistics (3PL) service for clients and (iv) Production Support Services ("PSS") whereby it is supplying the workforce to the manufacturing companies for production, material handling, and maintenance. In catering clients with service portfolio, it is supported by Subsidiaries and Associate. 

The company operates in the Business-to-Business ("B2B") services space offering a spectrum of business services, which are broadly classified into two segments - Integrated Facilities Management and Support Services.

These all above services share common characteristics as they are all B2B services which are primarily in the nature of annuity- based services whereby the customer, once acquired, generates revenue over an extended period of time. Its annuity- based model helps in spreading out the customer acquisition costs and offers the opportunity to cross-sell and up-sell other services, thus resulting in a higher wallet share from customers. Another common characteristic of certain of the services offered by it is that they enable efficiency in business operations for customers. All of its services are an integral part of customers' business and assist in forming an important part of customers' core value creation. These services are also mostly such that they are created and offered through a combination of people, processes and technology. Except Corporate Food Solution Services, none of its offerings involve any raw materials and are therefore not dependent on any commodity cycles or unpredictable input cost variations. Further, most of its offerings except employee transportation do not involve any major deployment of fixed assets and are therefore asset light. It has witnessed strong growth over the years. It has long term contracts from creamy clients like Tata Motors, Bajaj Group, Mercedes, Infosys to name a few. It has good long term relations with such big clients.

As of September 30, 2024 the Company Owned 430 Buses (having capacity of 13 Seats to 55 seats) and total 98 Hired vehicles with detailed breakup of vehicle as per Service offered under ET Service. It has employed 10935 personnel as of September 30, 2024. Out of its total employee, the company has over 10798 employees of which billable personnel 137 are unbillable personnel on the payroll of the Company.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6579200 equity shares of Rs. 10 each to mobilize Rs. 50.00 cr. at the upper cap. It has announced a price band of Rs. 72 - Rs. 76 per share. The issue opens for subscription on December 11, 2024, and will close on December 13, 2024. The minimum number of shares to be applied is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.50% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 30.00 cr. for working capital, Rs. 7.50 cr. for inorganic initiatives, and the rest for general corporate purposes. 

The company has allocated not more than 10.01% for QIBs, not less than 44.98% for HNIs and not less than 45.01% for Retail investors.

The IPO is solely lead managed by Khandwala Securities Ltd., and KFin Technologies Ltd. is the registrar to the issue. Aftertrade Broking Pvt. Ltd., is the Market Maker for the company. Khandwala Securities Ltd. is the syndicate member. The issue is underwritten by Khandwala to the tune of 15% and 85% by Aftertrade Broking. 

After issuing initial equity shares at par value, the company issued bonus shares in the ratio of 72 for 1 in March 2024. The average cost of acquisition of shares by the promoters is Rs. 0.137 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 18.25 cr. will stand enhanced to Rs. 24.83 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 188.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 236.69 cr. / Rs. 4.27 cr. (FY22), Rs. 330.79 cr. / Rs. 5.89 cr. (FY23), and Rs. 356.95 cr. / Rs. 8.33 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 2.72 cr. on a total income of Rs. 99.33 cr. Its borrowing of Rs. 93.74 cr. as of June 30, 2024 raises concern. According to the management, most of this borrowing is used for purchase of new vehicles for long term contracts with blue chip clients.

For the last three fiscals, the company has reported an average EPS of Rs. 3.40 and an average RoNW of 20.14%. The issue is priced at a P/BV of 3.73 based on its NAV of Rs. 20.39 as of June 30, 2024, but its post-IPO NAV data is missing from price band ad.

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 17.35, and based on FY24 earnings, the P/E stands at 21.35.  The issue relatively appears fully priced. 

For the reported periods, the company has posted PAT margins of 1.65% (FY22), 1.68% (FY23), 2.09% (FY24), 2.43% (Q1-FY25), and RoCE margins of 22.10%, 22.27%, 23.10%, 23.65%, respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer documents. It will adopt a prudent dividend policy post listing, 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 8th mandate from Khandwala Securities in the last two fiscals (including the ongoing one).  From the 7 listings, 1 listed at discount, 1 at par and the rest listed with a premiums ranging from 5% to 90% on the listing date.