DAPS Advertising BSE SME IPO review (May apply)

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Review By Dilip Davda on October 25, 2022

•    DAPS is in the business of providing advertising agency services.
•    Sudden boost in its bottom lines for the last 18 months raises concern.  
•    Higher issue expenses raise eyebrows. 
•    Based on its super recent earnings, the issue is lucratively priced. 
•    Well-informed risk seekers may consider investment for the long term. 

ABOUT COMPANY:
DAPS Advertising Ltd. (DAPS) is engaged in the business of providing advertising agency services offering a range of advertising media services consisting of print media, electronic media and outdoor media services which cover advertisement modes such as newspapers, brochures, magazines, television channels, FM channels and display of outdoor hoardings etc.

DAPS is an INS (Indian Newspaper Society) accredited Company. it acts as an intermediary between clients and the media and the company's scope of services includes assisting clients in choosing the optimal advertisement channel in accordance with their budget and regional preference, designing advertisements (through an in-house team or third party), negotiating and booking ad space with chosen media agency and ensuring the publication of requisite advertisement.

DAPS's client domain mainly includes corporate clients operating in various business fields viz. construction, education, electronics, automobiles, FMCG, jewellery, apparel, insurance, housing, hospital, financial service providers, aviation, Government organizations etc., thus providing exposure to serve clients working in various industries and thus widening its exposure. As of the date of filing this offer documents, it had 12 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 2.53 cr.), and general corporate purpose (Rs. 1.00 cr.), DAPS is coming out with a maiden IPO of 1700000 equity shares of Rs. 10 each at a fixed price of Rs. 30 per share to mobilize Rs. 5.10 cr. The issue opens for subscription on October 31, 2022, and will close on November 03, 2022. A minimum application is to be made for 4000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 32.85% of the post-issue paid-up equity capital of the company. DAPS is spending Rs. 1.57 cr. for this IPO process, which indicates funding arrangements for the subscription. 

The sole lead manager for this IPO is Shreni Shares Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Shreni Shares Pvt. Ltd. is also acting as a market maker for this company. 

Having issued entire equity shares at par so far, the company also issued bonus shares in the ratio of 32 for 1 in December 2017. The average cost of acquisition of shares by the promoters is Rs. 0.21 and Rs. 0.49 per share. 

Post-IPO, DAPS's current paid-up equity capital of Rs. 3.48 cr. will stand enhanced to Rs. 5.18 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 15.53 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, DAPS has posted revenue/net profit of Rs. 20.37 cr. / Rs. 0.39 cr. (FY20), Rs. 8.04 cr. / Rs. 0.10 cr. (FY21), and Rs. 18.77 cr. / Rs. 1.09 cr. For the first half of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.88 cr. on a revenue of Rs. 14.66 cr. Thus sudden boost in the bottom line for the last 18 months' performance raises eyebrows.  

For the last three fiscals, DAPS has reported an average EPS of Rs.1.85 and an average RoNW of 7.91%. The issue is priced at a P/BV of 1.13 based on its NAV of Rs. 26.53 as of September 30, 2022, and at a P/BV of 1.31 based on its post-IPO NAV of Rs. 22.94. 

If we annualize FY23 earnings and attribute it to a post-IPO fully diluted paid-up equity base, then the asking price is at a P/E of around 8.82. Thus the issue is lucratively priced based on its super earnings. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, DAPS has shown Vertoz Advertising and Pressman Advertising as their listed peers. They are currently trading at a P/E of around 34.42 and 30.43 (as of October 25, 2022). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 14th mandate from Shreni Shares in the last three fiscals (including the ongoing one). Out of the last 10 listings, all opened at premiums ranging from 0.55% to 101.18% on the day of listing. 

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