Aspire & Innovative NSE SME IPO review (May apply)

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Review By Dilip Davda on March 21, 2024

•    The company does its business from third party products and gets commission.
•    The company has posted growth in its top and bottom lines for the reported periods.
•    It operates mainly in rural and semi-rural areas to market its products.
•    Though the IPO appears reasonably priced based on FY24 annualized earnings, it's a "High Risk/Low Return" bet.
•    Well-informed investors may park moderate funds for the medium term rewards.

ABOUT COMPANY:
Aspire & Innovative Advertising Ltd. (AIAL) is engaged in the business of trading of wide range of consumer durables like kitchen appliances, home appliances, white goods, mobile phones and its accessories, solar products etc. of multiple renowned brands such as Bajaj, Prestige, Vivo, Samsung, Crompton, Whirlpool, Hindware, Havells and many more. Its range of products are offered at different price points to meet diverse customer requirements across India along with delivery of products mainly in the rural and semi urban areas. 

The company provides one platform that bring multiple brands under one umbrella so as to fulfil the requirements of the customer thus, improving their lifestyles. It started business in 2017 with an objective of providing basic but advanced products to India's rural and semi urban population along with product delivery up to customers' doorstop, in rural and semi urban areas of the country with focus on un-banked and underbanked customer segments through partners working in this space. To achieve this objective, in addition to its sales team, the company sells product majorly through intermediaries i.e. Non - Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) and there is no other trading platform for selling of products. It has entered into commercial arrangements with a large number of intermediaries like Non-Banking Financial Companies (NBFCs), Non-Banking Financial Companies (NBFCs)- Micro Finance Institutions (MFIs) along with Warehousing and Transportation facilities in 16 states in India. 

As of the date of this offer document it had more than 15 intermediaries for marketing of various products at various locations. The company operates an asset light business model, where its major expenditure is for payment of facilitation fees & commission to these intermediaries for their services which include services like marketing of products to their existing customer base in rural and semi urban communities, allowing field staff & trainers to interact with their customers, collation of expected demand and providing banking and financial services to them for buying our products. 

For the purpose of storing and then delivering the products to customers, it has warehousing and transporting facility in 16 states of India from where it delivers these products at doorsteps of customers, mostly in the rural and semi-urban areas. The Company also earns revenue from the display of advertisements on its website for which it is having written agreements with the respective insurance companies. In addition to offering third-party brands, AIAL started selling Stainless Steel Dinner Sets under its own brand name in 2022. Furthermore, in 2023, it expanded product range to include pressure cookers, also, branded under its name i.e. "Aspire Classico". These products are sourced or manufactured by third parties according to the specifications developed by it. As of November 30, 2023, it had 49 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 4068000 equity shares of Rs. 10 each to mobilize Rs. 21.97 cr. at the upper cap. It has announced a price band of Rs. 51 - Rs. 54 per share. The issue opens for subscription on March 26, 2024, and will close on March 28, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.80% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 9.00 cr. for working capital, Rs. 4.95 cr. for cost of new warehouses, and the rest for general corporate purposes. 

The issue is solely lead managed by Hem Securities Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. HEM Group's Hem Finlease Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par, the company issued further equity shares at a fixed price of Rs.61.44 in September 2021. It has also issued bonus shares in the ratio of 100 for 1 in June 2021, and 9 for 1 in September 2023. The average cost of acquisition of shares by the promoters is Rs. 0.12, Rs. 1.53 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 11.11 cr. will stand enhanced to Rs. 15.18 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 81.96 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 108.33 cr. / Rs. 2.28 cr. (FY21), Rs. 255.58 cr. /Rs. 4.37 cr. (FY22), and Rs. 346.20 cr. / Rs. 5.31 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 3.93 cr. on a total income of Rs. 177.10 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 3.42, and an average RONW of 38.68%. The issue is priced at a P/BV of 3.09 based on its NAV of Rs. 17.50 as of September 30, 2023, and at a P/BV of 2.20 based on its post-IPO NAV of Rs. 24.60 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 10.43. Though the issue appears reasonably priced, it appears to be "high risk/low return" bet.

For the reported periods, the company has posted PAT margins of 2.11% (FY21), 1.71% (FY22), 1.54% (FY23), 2.23% (H1-FY24), and RoCE margins of 55.98%, 55.45%, 30.79%, 18.59% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 43rd mandate from Hem Securities in the last three fiscals, out of the last 10 listings, 1 opened at discount (Sona Machinery) and the rest with premiums ranging from 8.57% to 125% on the date of listing. 

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