Tranway Techno BSE SME Startup IPO review (May apply)

• TTL is in servicing business like staffing, demand development, SAP solutions etc.
• This segment is highly fragmented, poses threat from big players.
• Needs of higher working capitals is a big challenge.
• Lead Manager has poor track records.

ABOUT COMPANY:
Tranway Technologies Ltd. (TTL) is currently in the core business of staffing solutions and payaroll processing. It mulls other offerings like quality engineering and assurance; demand development projects, software developments, start up training etc. TTL has up the sleeve developments of SAP solutions, software products etc.

Currently TTL has limited market reach, threats from big players, dependency on suppliers, inadequate working capital and thus poses major threats.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 3.64 cr.) and general corpus fund (Rs. 0.25 cr.) TTL is coming out with a maiden IPO of 4240000 equity shares of Rs. 10 each at par value to mobilize Rs. 4.24 cr. The issue opens for subscription on 27.01.20 and will close on 29.01.20. The minimum application is to be made for 10000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME Startup. The issue constitutes 40.00% of the post issue paid-up capital of the company. TTL is spending Rs. 0.35 cr. for the entire proceeds of this IPO.

The issue is solely lead managed by Finshore Management Services Ltd. and Link Intime India Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this issue. Having issued entire equity at par, TTL converted equity at a price of Rs. 26.82 (based on Rs. 10FV). per share in November 2019. It has issued bonus shares in the ratio of 20 shares for every 1 share held in December 2019 and also split face value of shares from Rs. 100 to Rs. 10.

The average cost of acquisition of shares by the promoters is Rs. 11.96 per share. Post issue, TTL's paid-up capital will stand enhanced from Rs. 6.36 cr. to Rs. 10.60 cr. Thus the company mulls market capitalization of Rs. 10.60 cr.

FINANCIAL PERFORMANCE:
For the last three fiscals, TTL has posted turnover/net profits of Rs. 3.12 cr. / Rs. 0.12 cr. (FY17), Rs. 3.94 cr. / Rs. 0.11 cr. (FY18) and Rs. 5.18 cr. / Rs. 0.24 cr. (FY19). For the first half of FY20, it has clocked in the net profit of Rs. 0.06 cr. on a turnover of Rs. 2.29 cr. TTL's top line has shown growth but bottom line has seen inconsistency.

For the last three fiscals, TTL has posted an average EPS of Rs. 892.93 and an average RoNW of 44.16% (based on pre-bonus/pre-split equity). The issue is priced at a P/BV of 0.68 based on its NAV of Rs. 14.72 as on 30.09.19 and at a P/BV of 0.85 based on post-IPO NAV of Rs. 11.74. As on 30.09.19TTL has shown average EPS of Rs. 1.51 and an average RoNW of 10.26% (considering post restated bonus/split equity). TTL has not paid any dividend so far. Its debtors holding days are 90 days that raises concern.

If we annualize FY20 earnings and attribute it to post issue paid-up equity capital then asking price is at a P/E of 90. Thus even being at par, it is a costly bet.

COMPARISION WITH LISTED PEERS:
As per offer documents, TTL has shown Info Edge as its listed peers. It is currently trading at a P/E of 98.65 (as on 23.01.20). However, it is not strictly comparable.

MERCHANT BANKER'S TRACK RECORD:
On merchant banker's front, this is the 14th mandate from its stable in the last three fiscals (including the ongoing). Out of the last 10 listings, three issues opened at a discount, one at par and the rest with a premium ranging from 1.63% to 20.67% on the day of listings. IPO of Alumilite Arch was withdrawn post closure of the issue. Thus it has poor track records.