Vivo Collaboration NSE SME IPO review (May apply)

•    VCSL is engaged in providing Cloud Telephony Solutions.
•    It has posted rapid growth in the last 15 months i.e. before IPO.
•    Sudden boost in the bottom line in recent years raises eyebrows.
•    Based on its financial data, IPO pricing appears tempting. 
•    Compare with listed peers is surprising. 

ABOUT COMPANY:
Vivo Collaboration Solutions Ltd. (VCSL) offers a comprehensive suite of telephony services, covering every voice-based solution that an enterprise needs. It delivers end-to-end Cloud Telephony solutions for Enterprises. Incorporated with the vision to redefine all voice-centric communication by enabling enterprises to break free from the legacy PSTN-based communication, Vivo takes IP voice applications to a whole new level.

Vivo converged platform is solid, scalable and yet simple — solid as it harnesses the robustness of TDM networks; scalable as it rides a ubiquitous MPLS cloud, and simple because it neatly integrates everything in the background. The platform exquisitely differentiates and stands out among other competing services on account of its top-driven tech DNA, which ensures that even the minutest of development aspects are addressed to perfection.

VCSL's OPEX-based cloud platform caters to specific needs of diverse customer base and services are optimally calibrated to ensure zero communication loss and hence save precious management time. It unlocks a whole new world of high-definition conferencing and peer-to-peer voice features.

It has 19 full-time employees as of August 02, 2021. VCSL's manpower is a prudent mix of the experienced and youth which gives the dual advantage of stability and growth.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its need for working capital (Rs. 2.68 cr.), general corporate purpose (Rs. 1.10 cr.), VCSL is coming out with a maiden IPO of 536000 equity shares of Rs. 10 each at a fixed price of Rs. 82 per share to mobilize Rs. 4.40 cr. The issue opens for subscription on December 20, 2021, and will close on December 23, 2021. Minimum application is to be made for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on the NSE SME Emerge platform. The issue constitutes 26.60% of the post issue paid-up capital of the company. VCSL will be spending Rs. 0.62 cr. for this IPO process. This indicates a fully structured issue with funding arrangements clocked in before the issue. 

The is solely lead managed by Sarthi Capital Advisors Pvt. Ltd., Bigshare Services Pvt. Ltd. is the registrar and O J Financial Services Ltd. is the market maker for this issue. 

The company has issued entire equity at par so far and has also issued bonus shares in the ratio of 28 for 1 in September 2020. The average cost of acquisition of shares by the promoters is Rs. 5.95 per share. 

Post issue, VCSL's current paid-up equity capital of Rs. 1.48 cr. will rise to Rs. 2.02 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 16.52 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, VCSL has posted revenue/net profits of Rs. 9.04 cr. / Rs. 0.04 cr. (FY19), Rs. 10.03 cr. / Rs. 0.58 cr. (FY20) and Rs. 14.89 cr. / Rs. 3.19 cr. (FY21). For the first quarter of FY22 ended on June 30, 2021, it has earned a net profit of Rs. 1.11 cr. on a revenue of Rs. 3.64 cr. The sudden boost in bottom lines for the last 15 months raises eyebrows.

For the last three fiscals, VCSL has posted an average EPS of Rs. 16.53 and an average RoNW of 61.46%. The issue is priced at a P/BV of 2.57 based on its NAV of 31.91 as of March 31, 2021, and at a P/BV of 1.81 based on its post-issue NAV of Rs. 45.24. 

If we annualize FY22 earnings and attribute it to fully diluted post IPO equity, then the asking price is at a P/E of around 3.72 and based on FY21 it comes to 5.18. Thus the IPO pricing appears tempting based on the FY21 and FY22 (annualized) earnings. 

DIVIDEND POLICY: 
The company has not declared any dividend in any financial year. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per offer documents, VCSL has shown Mphasis, Coforge and Birlasoft as its listed peers. They are currently quoting at a P/E of 48.65, 84.49 and 54.88 (As of December 17, 2021). However, they are not truly comparable on an apple-to-apple basis. Comparison with these peers has also surprised one and all. 

MERCHANT BANKER'S TRACK RECORDS:
This is the 44th mandate from Sarthi Capital in the last decade since fiscal 12-13 with no IPOs during fiscal 19-20. It preferred to seat on the fence in the last few years amidst a dull season for SME IPOs. For FY21 it brought only one IPO and in this fiscal, this is the first IPO from its stable. Out of the last 10 listings, 2 opened at discount, 2 at par and the rest with premiums ranging from 0.071% to 22.87%.