Unified Data BSE SME IPO review (May apply)

•    The company is engaged in providing system integrations and related technologies.
•    It marked growth in its top and bottom lines, but sudden spurt in bottom lines from FY24 onwards raises eyebrows and concern over its sustainability.
•    It is operating in a highly competitive and fragmented segment.
•    Entire IPO is by way of secondary offer and thus is a big surprise.
•    Based on its recent financial data, the issue appears fully priced.
•    Well-informed investors may park moderate funds for medium to long term.

ABOUT COMPANY:
Unified Data Tech Solutions Ltd. (UDTSL) is a technology company specializing in system integration. It provides comprehensive IT solutions, including data centre infrastructure, virtualization, data protection, networking, cybersecurity, secure application delivery etc. UDTSL’s services cater to a wide range of industries, such as Banking, Finance, Insurance, Manufacturing, Pharmaceuticals, IT and IT enabled services etc. It collaborates closely with clients to develop, implement, and manage cost-effective, secure, and high-performance IT solutions that meet their unique requirements, providing ongoing support to optimize their systems.

By focusing on quality delivery and customer satisfaction, it aims to be a trusted partner in delivering cutting-edge solutions that meet the diverse needs of clientele. The company procures products and services relative to Data Center Infrastructure, Virtualization and Private Cloud, Data Protection and Resiliency, Networking and Cybersecurity Solutions and Secure Application Delivery etc. It is authorized partners of various original equipment manufacturers (“OEMs”) for distribution of IT products and services along with maintenance contracts and subscriptions etc. Its products and services portfolio comprise of Servers, Storage Solutions, Networking equipment, Firewall and VPN Solutions, Intrusion Detection and Prevention Systems, Endpoint Security Solutions, Network Segmentation and access controls, Application Firewalls, Load Balancing, Application Monitoring and Performance Optimization, Secure Access Solutions, Backup and Restore Solutions, Disaster Recovery Planning, High Availability Solutions, Server Virtualization, Desktop Virtualization, Private Cloud Deployment, Management Tools, Hybrid Cloud Design and Implementation, Cloud Management Platforms. 

In addition to these products and services, it provides a comprehensive range of services including Technology Advisory Services, System Integration, Expert Technical Services and Operational Management Services among others. Over the years, if has been able to diversify its client base, which spans across various industries including Banking, Finance, Insurance, Government and Public Sector Undertakings (PSUs), IT and ITeS, Manufacturing and other industries. BFSI has the lion share in its total revenues. As of March 31, 2025, it had 38 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 5292000 equity shares of Rs. 10 each to mobilize Rs. 144.47 cr. at the upper cap. The issue opens for subscription on May 22, 2025, and will close on May 26, 2025. UDTSL has announced a price band of Rs. 260 – Rs. 273 per share. The minimum number of shares to be applied is for 400 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. The full IPO is by way of Offer for Sale (OFS) and thus, no money is going to the company. The offer is being made for the benefits of listing.

The IPO is solely lead managed by Hem Securities Ltd., and KFin Technologies Ltd., is the registrar to the issue. Hem Group’s Hem Finlease Pvt. Ltd., is the Market Maker for the company as well as a syndicate member.

Having issued initial equity shares at par value, the company issued further equity shares at a fixed price of Rs. 251.80 per share (on the basis of Rs. 10 FV), in January 2014. It has also issued bonus shares in the ratio of 400 for 1 in September 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.00, Rs. 0.10, and Rs. 0.63 per share. 

Post-IPO, this being a complete secondary issue, company’s current paid-up equity capital of Rs. 20.09 cr. (20090100 shares) will remain same. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 548.46 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 95.50 cr. / Rs. 9.71 cr. (FY22), Rs. 112.81 cr. / Rs. 10.40 cr. (FY23), and Rs. 266.80 cr. / Rs. 25.13 cr. (FY24). For 11M of FY25 ended on February 28, 2025, it earned a net profit of Rs. 31.68 cr. on a total income of Rs. 203.66 cr. Quantum jump in its top and bottom lines from FY24 onwards raise eyebrows and concern over its sustainability going forward.

For the last three fiscals, the company has reported an average EPS of Rs. 8.79 and an average RoNW of 34.20%. The issue is priced at a P/BV of 5.73 based on its NAV of Rs. 47.65 as of February 28, 2025, as well as on its post-IPO NAV per share (at the upper cap).

If we attribute FY25 annualized super earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 15.42. Based on FY24 earnings, the P/E stands at 21.82. The issue relatively appears fully priced.

For the reported periods, the company has posted PAT margins of 10.41% (FY22), 9.41% (FY23), 9.65%, (FY24), 16.28% (11M-FY25), and RoCE margins of 46.07%, 35.82%, 52.55%, 43.66% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. 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 shown Dynacons Systems, Orient Technologies, and Silver Touch Techno., as their listed peers. They are trading at a P/E of 22.0, 29.8, and 44.6 (as of May 19, 2025). However, they are not truly comparable on an apple-to- apple basis. No peers have posted such lucrative margins, and hence, sustainability of margins posted by this company, particularly in pre-IPO years is surprising. This compare with peers also appears to be an eyewash.

MERCHANT BANKER’S TRACK RECORD:
This is the 49th mandate from Hem Securities in the last three fiscals, including the ongoing one.  From the last 10 listings so far, 1 listed at par and the rest with a premium ranging from 2.30% to 90.00% on the listing date.