Cell Point NSE SME IPO review (Avoid)

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Review By Dilip Davda on June 11, 2023

•    CPIL is engaged in multi-brand retail selling of smartphones, and electronic items.
•    It is a south-centric retailer with operations in Andhra Pradesh only.
•    After average financial performance till FY22, it posted super margins for 9M-FY23.
•    Based on FY23 annualized working, the issue appears greedily priced. 
•    There is no harm in skipping this pricey bet.

ABOUT COMPANY:
Cell Point (India) Ltd. (CPIL) is engaged in multi-brand retail selling of Smart Phones, tablets, mobile accessories and mobile-related products and allied accessories of various brands such as Apple, Samsung, Oppo, Realme, Nokia, Vivo, Xiaomi, Redmi, Techno, One Plus, GIONEE, VIVO etc. It is also engaged in retail selling of some of the consumer durable electronics goods, specifically, smart televisions of various brands such as Xiaomi, Realme and One Plus. 

All products are sold under one roof through its 75 retail store chain located all over Andhra Pradesh. The company also provides payment options such as credit/EMI facilities including UPI, vouchers, & pay on-delivery to its customers for buying products for which the company has tied up with major leading credit houses like Bajaj Finserv, Capital First, TVS Credit Finance etc. The products sold by the Company enjoy limited warranty from its supplier company as back-to-back. Generally, in case of a defect, the company gets free replacement or services from the supplier Company. As of December 31, 2022, it had 298 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 5034000 equity shares of Rs. 10 each at a fixed price of Rs. 100 per share to mobilize Rs. 50.34 cr. The issue opens for subscription on June 15, 2023, and will close on June 20, 2023. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.93% of the post-IPO paid-up capital of the company. CPIL is spending Rs. 0.80 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 16.86 cr. for repayment of certain borrowings, Rs. 12.00 cr. for repairs and renovation of existing stores and setting new retail stores, Rs. 10.00 cr. for working capital and Rs. 10.68 cr. for general corporate purposes.  

First Overseas Capital Ltd. is the sole lead manager and Bigshare Services Pvt. Ltd. is the registrar of the issue. NNM Securities Pvt. Ltd. is the market maker for the company. 

Having issued entire equity shares at a par value so far, it has also issued bonus shares in the ratio of 11 for 1 in December 2022. The average cost of acquisition of shares by the promoters is Rs. 3.24, and Rs. 3.32 per share. (There is a mismatch in bonus shares issue data referred to on page no. 58 and no. 81 of the offer document). 

Post-IPO, CPIL's current paid-up equity capital of Rs. 13.65 cr. will stand enhanced to Rs. 18.69 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 186.86 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, CPIL has posted a turnover/net profit of Rs. 278.12 cr. / Rs. 1.60 cr. (FY20), Rs. 223.56 cr. / Rs. 0.69 cr. (FY21), and Rs. 270.04 cr. / Rs. 1.65 cr. (FY22). For 9M of FY23, it earned a net profit of Rs. 5.81 cr. on a turnover of Rs. 221.68 cr. It suffered a minor setback for FY21 on account of the pandemic. Super profits for 9M-FY23 (pre-IPO year) raise eyebrows and the sustainability of such margins going forward amidst rising competition. 

The sudden jump in net margins to 2.62% for 9M-FY23 against 0.61% for FY22 raises eyebrows. Its debt as of December 31, 2022, stood at 48.80 cr. and is a major concern. 

For the last three fiscals, CPIL has reported an average EPS of Rs. 11.60 and an average RoNW of 10.55%. The issue is priced at a P/BV of 7.12 based on its NAV of Rs. 14.04 as of December 31, 2022, and at a P/BV of 2.33 based on its post-IPO NAV of Rs. 42.87 per share. 

If we annualize super FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is approximately at a P/E of 24.10, and based on its FY22 earnings, the P/E stands at 113.64. Thus the issue is exorbitantly priced discounting all near-term positives. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Bhatia Commu, Fone4 Commu, and Jay Jalaram as their listed peers. They are currently trading at a P/E of 23.08, 00, and 78.31 (as of June 09, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from First Overseas in the last four fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at discount, 2 at par and the rest listed at premiums ranging from 2.50% to 43.53% on the listing date. Thus the LM has an average track record. 

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