SVS Ventures BSE SME IPO review (Avoid)

•    SVS Ventures is in the real estate segment which is highly competitive. 
•    It has posted inconsistency in its top and bottom lines for the reported periods.
•    Based on its annualized FY23 workings, the issue is exorbitantly priced. 
•    There is no harm in ignoring this pricy issue. 
 
ABOUT COMPANY:
SVS Ventures Ltd. (SVL) was originally incorporated under the name and style of Hetarth Software Solutions Pvt. Ltd. in December 2015. It changed its name to EPL Life Sciences Pvt. Ltd. in December 2021, and thereafter it changed its name again to SVS Ventures Pvt. Ltd. in March 2022 and then to SVS Ventures Ltd. in June 2022. Thus it rechristened its name more than three times. It was engaged in the business of real estate since 2015 and has nothing to do with software solutions or life science as appeared in its name. 

Currently, its business focuses on residential villas and apartment development projects. SVL's residential villas and apartments portfolio consists of various types of accommodation of varying sizes. Its residential buildings and villas are designed with a variety of amenities such as security systems, sports, and recreational facilities, play areas, and electricity backup. As of June 30, 2022, it has 6 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5622000 equity shares of Rs. 10 each at a fixed price of Rs. 20 per share to mobilize Rs. 11.24 cr. The issue opens for subscription on December 30, 2022, and will close on January 04, 2023. The minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post-issue paid-up capital of the company. SVL is spending Rs. 0.60 cr. for this IPO process. From the residual funds, it will utilize Rs. 8.04 cr. for the working capital and Rs.2.60 cr. for general corporate purposes.

The sole Lead Manager for this issue is First Overseas Capital Ltd. and Bigshare Services Pvt. Ltd. is the registrar of the issue. SVCM Securities Pvt. Ltd. is the Market Maker for this company.  

The company issued initial equity shares at par. Thereafter it issued further equity shares at Rs. 40 per share in April-May 2022. It has also issued bonus shares in the ratio of 1.98 shares for every 1 share held in May 2022. The average cost of the acquisition of shares by the promoters is Rs. 13.40 per share. 

Post-issue, SVL's current paid-up equity capital of Rs. 15.73 cr. will stand enhanced to Rs. 21.35 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 42.70 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SVL has posted a turnover/net profit of Rs. 13.49 cr. / Rs. 0.25 cr. (FY20), Rs. 13.55 cr. / Rs. 0.27 cr. (FY21), and Rs. 8.68 cr. / Rs. 1.83 cr. (FY22). For Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 0.14 cr. on a turnover of Rs. 1.30 cr. For FY22, it has reported other income of Rs. 1.93 cr. at the gross level which helped in the improved bottom line. 

For the last three fiscals, SVL has reported an average EPS of Rs. 7.24 and an average RoNW of 319.18%. The issue is priced at a P/BV of 0.08 based on its NAV of Rs. 2646.40 as of June 30, 2022, and at a P/BV of 1.31 based on its post-IPO NAV of Rs. 15.23 per share. There appears to be some goof-up in this data as the Lead Manager has not presented restated data for EPS, RoNW, and NAV mirroring the rise in equity capital between April 2022 and May 2022 on account of further equity issues as well as bonus shares. (Refer to pages 79 and 80 of the offer documents). 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of around 75. Thus the issue is exorbitantly priced. 

DIVIDEND POLICY:
The company has not declared any dividends since its 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 Samor Reality, DB Realty, and Athena Constructions as their listed peers. They are currently trading at a P/E of NA, 14.76, and NA (as of December 27, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par, and the rest with premiums ranging from 2.5% to 120% on the day of listing.