Systango Techno NSE SME IPO review (May apply)

•    STL is in the business of IT solutions providing and related services.
•    It has marked consistent growth in its top and bottom lines for the reported periods.
•    Based on the financial data, the issue appears fully priced. 
•    Well-informed investors may consider parking funds for long-term rewards. 

ABOUT COMPANY:
Systango Technologies Ltd. (STL) is engaged in the business of providing software solutions that enable companies to design, implement and manage their own customized digital platforms including Web2, Web3 and mobile applications with a strong emphasis on data and analytics. 

It provides a range of software solution services including website development, mobile app development (both for iOS and Android applications), web3 development, DeFi (Decentralized finance), data engineering, implementation of blockchain, cloud computing, digital marketing etc. for companies across sectors such as Financial Services (FinTech), Hospitality, Fantasy Sports, Property Tech etc. Through its software solutions, the company combines functionality, flexibility and customer software development for customers with the Cost-effective, speed of implementation and other operational benefits of outsourcing.

Over the years the company has evolved as a professional and technical service provider by offering end-to-end technology solutions and support. Its clients range from entrepreneurs and start-up enterprises to established companies, engaged in the business of Fantasy Sports, transportation and logistics, Financial Services (FinTech) and various other industries including clients like Sila Inc, Urbansoft Sa(Pty)Ltd, Youtility Ltd, Ulster University, Ireland and others.

STL's revenue is primarily generated from export sales and it provides services along with its subsidiaries to various clients spread across 10 countries. The company is headquartered in the Special Economic Zone (SEZ) of Indore which allows it to avail of tax benefits as per SEZ norms. Its operations are further facilitated through wholly owned subsidiary Companies i.e. Systango Ltd. in the UK and Systango LLC in the USA. As of September 30, 2022, it had 281 permanent employees and 15 interns/trainees.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3868800 equity shares of Rs. 10 each via the book-building route and has announced a price band of Rs. 85 -Rs. 90 per share. At the upper cap, the company is looking for mobilizing Rs. 34.82 cr. The issue opens for subscription on March 02, 2023, and will close on March 06, 2023. The minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post-issue paid-up capital of the company. The company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

From the net proceeds of the IPO, the company will utilize Rs.8.00 cr. for strategic investment and acquisitions, Rs. 10.00 cr. for investment in subsidiaries, Rs. 10.00 cr. for working capital and the balance for general corporate purposes. 

Hem Securities Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue.  Hem group company Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares by way of bonus shares in the ratio of 54 for 1 in February 2020, 43 for 11 in October 2020, and 3 for 1 in October 2022. The average cost of acquisition of shares by the promoters is Rs. NIL per share.  

Post-IPO, STL's current paid-up equity capital of Rs. 10.80 cr. will stand enhanced to Rs. 14.67 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 132.02 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, STL has (on a consolidated basis) posted a turnover/net profit of Rs. 14.55 cr. / Rs. 2.52 cr. (FY20), Rs. 24.21 cr. / Rs. 5.95 cr. (FY21), and Rs. 34.34 cr. / Rs. 7.11 cr. (FY22). For H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 4.36 cr. on a turnover of Rs. 21.38 cr. 

For the last three fiscals, on a consolidated basis, STL has reported an average EPS of Rs. 5.52 and an average RoNW of 47.26%. The issue is priced at a P/BV of 4.37 based on its NAV of Rs. 20.59 as of September 30, 2022, and at a P/BV of 2.31 based on its post-IPO NAV of Rs. 38.90 per share (at the upper cap).

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 15.13. Based on its financial data, the issue appears fully priced. 

DIVIDEND POLICY:
The company paid a dividend of 500% for FY20 and thereafter it skipped. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown InfoBeans Techno, Innovana Thinklabs and Ksolves India as their listed peers. They are currently trading at a P/E of 34.35, 62.84, and 22.81 (as of February 28, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The merchant banker associated with the issue has handled 21 public issues in the last three fiscals, out of which 1 issue closed below the issue price on the listing date.