Transpact Enterprises BSE SME Startup IPO review (Avoid)

•    The company outsources its therapeutic device from the third party.
•    TEL hs posted negative earnings for the last three fiscals.
•    The company is spending Rs. 0.30cr. to raise Rs. 1.35 cr.
•    The issue is priced exorbitantly despite negative earnings.

ABOUT COMPANY:
Transpact Enterprises Ltd. (TEL) is a design, development and distribution company for a therapeutic device - 'Vestibulator' which is a unique and innovative therapeutic design in medical device segment. Vestibular has been incubated at SINE (Society for Innovation and Entrepreneurship), IIT Bombay. Further, a licence agreement had been executed between IIT Bombay and the company to carry out all commercialization activities.

TEL along with IIT Bombay has filed a joint patent for the technology of Vestibulator with Controller General of Patents, Designs and Trademarks, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry. Vestibulator is a compact, mechanized, innovative therapeutic device which is ergonomically designed to provide stimulations for vestibular, neurodevelopmental and sensory integration therapy.
The device is being outsourced by the company. It provides design details for manufacturing to the third party.

Group company Octaware Technologies is already listed on BSE SME since 2017. Shares issued at Rs. 90 are currently quoting at Rs. 98.50 with 52 weeks high/low of Rs. 110/Rs. 91.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans of redemption of preference shares (Rs. 0.29 cr.), acquisition of R&D facility and Registered Office (Rs. 0.75 cr.) and general corpus fund (Rs. 0.02 cr.) needs, TEL is coming out with a maiden IPO of 104000 equity shares of Rs. 10 each at a fixed price of Rs. 130 per share to mobilize Rs. 1.35 cr. The issue opens for subscription on 26.08.19 and will close on 28.08.19. Minimum application is to be made for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME Startup. TEL is spending Rs. 0.30 cr. for this IPO process.

Issue constitutes 26.89% of the post issue paid-up capital of the company. The issue is solely lead managed by Aryaman Financial Services Ltd. while Bigshare Services Pvt. Ltd. is the registrar to the issue. Aryaman Capital Markets Ltd. is the market maker for this IPO.

Having issued initial equity at par, it raised further equity at a price ranging from Rs. 50 to Rs. 750 per share between November 2015 and April 2016 and has also issued bonus shares in the ratio of 6 for 1 in April 2019.

The average cost of acquisition of shares by the promoters is Rs. 1.43 per share.  Post issue TEL's current paid-up equity capital of Rs. 0.28 cr. will stand enhanced to Rs. 0.39 cr. Its preference equity of Rs. 0.25 cr. gets redeemed through this IPO process.

FINANCIAL PERFORMANCE:
For the last three fiscals, TEL has posted turnover/net profits of Rs. 0.00 cr. / Rs. -(0.05)  cr.  (FY17), Rs. 0.00 cr. / Rs. -(0.09) cr.. (FY18) and Rs. 0.13 cr. / Rs. -(0.07)cr.. (FY19). Thus it has posted negative earnings for all these years.

For the last three fiscals, it has posted an average EPS of Rs. - (2.60) and an average RoNW of -(28.17%).  The issue is priced at a P/BV of 325 on the basis of its NAV of Rs. 0.40 as on 31.03.19 and at a P/BV of 3.72 on the basis of post-issue NAV of Rs. 35.00. As the company has negative earnings for the last three fiscals, its offered at negative P/E. Based on financial data, the issue is exorbitantly priced.

COMPARE WITH LISTED PEERS:
As per offer documents, it has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORDS:
On merchant banker's front, this is the 33rd mandate from its stable in last three fiscals (including the ongoing fiscal). Out of last 10 listings, 2 opened at a discount and the rest with premiums ranging from 0.02% to 1.25%. Thus it has poor track records.