Docmode Health NSE SME IPO review (May apply)

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Review By Dilip Davda on January 22, 2024

•    The company is engaged in providing online/offline learning model to healthcare professionals.
•    The company has posted declining bottom lines for the reported periods. 
•    The tiny paid-up equity post-IPO indicates longer gestation period for migration.
•    Based on FY24 annualized earnings, the issue appears reasonably priced. 
•    Considering the new segment of the company, it is premature to predict future prospects.
•    Well-informed investors may park funds for the medium term. 

PREFACE:
Aho Ashcharyam, while this company's prospectus had a time line of IPO from January 24, 2024 to January 29, 2024, the IPO ad expressed changed time line from January 25, 2024, to January 30, 2024. Why the IPO time line is changed? The IPOs with January 22, 2024 date involvements had to opt for change in time line, but here there was no such compulsion. Off late we are witnessing submission of offer documents in a hush-hush way with shortfalls and such kind of last minute rush always creates some confusions. Who will take care of this lacuna? 

ABOUT COMPANY:
Docmode Health Technologies Ltd. (DHTL) is engaged in the business of offering integrated learning solutions through online and offline learning model to health care professionals and learners across the world, spanning the education value chain. Its offline learning model comprises of conferences and workshops, and online courses content is reviewed and presented by its dedicated in-house content development team or by medical institution and medical associations (medical professional bodies) and subject matter experts/key opinion leaders who are focused to effectively transfer knowledge, as well as communicate and network with each other through DHTL's learning and professional networking platform.

The Company mainly focus on providing learning solutions through online model. According to the company, its tech based online learning model allows health care professionals and learners to engage in self-paced inclusive and individualized learning experience without the requirements of physical classroom present. Its online learning model comprises notes, recorded videos, live conferences, workshops etc. In addition to the learning solutions, the company provides a platform for inter-professional cross industrial learning via panel discussion and courses as well as take advantage of performance assessment tools to better their clinical acumen in their daily medical practice. As of December 31, 2023, it had 66 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden fixed price IPO of 849600 equity shares of Rs. 10 each at a fixed price of Rs. 79 per share to mobilize Rs. 6.71 cr. The issue opens for subscription on January 25, 2024, and will close on January 30, 2024. The minimum application to be made is for 1600 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.03% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.65 cr. for this IPO process. From the net proceeds of the equity issue, it will utilize Rs. 3.03 cr. for purchase of IT infra and operating system, Rs. 2.00 cr. for working capital and Rs. 1.03 cr. for general corporate purposes. 

The issue is solely lead managed by Fedex Securities Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

The company has issued entire equity capital at par so far and has also given bonus shares in the ratio of 45 for 1 in June 2022, 11 for 10 in October 2022, and 82 for 100 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.65 per share

Post-IPO, company's current paid-up equity capital of Rs. 2.29 cr. (2293200 shares) will stand enhanced to Rs. 3.14 cr. (3142800 shares). Based on the upper IPO price band, the company is looking for a market cap of Rs. 24.83 cr.  The tiny equity capital post listing indicates longer gestation for migration to mainboard. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 7.10 cr. / Rs. 0.55 cr. (FY21), Rs. 12.44 cr. / Rs. 0.92 cr. (FY22), and Rs. 32.97 cr. / Rs. 1.95 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earns a net profit of Rs. 1.36 cr. on a total revenue of Rs. 23.67 cr.

For the last three fiscals, it has reported an average EPS of Rs. 6.84, and an average RONW of 70.01%. The issue is priced at a P/BV of 4.85 based on its NAV of Rs. 16.29 as of March 31, 2023, and at a P/BV of 2.15 based on its post-IPO NAV of Rs. 36.74 per share. The offer document as well as the IPO ad is missing its NAV data as of September 30, 2023.

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 9.12. Based on its P/E the issue appears reasonably priced. However, declining margins raises concerns.

For the reported periods, the company has posted PAT margins of 7.79% (FY21), 7.42% (FY22), 5.93% (FY23), 5.76% (H1-FY24), and RoCE margins of 54.97%, 30.15% 22.46%, 19.83% respectively for the referred periods. This indicates declined margins for the reported periods. 

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, the company has no listed peers to compare with.

MERCHANT BANKER'S TRACK RECORD:
This is the 24th mandate from Fedex Securities in the last three fiscals, out of the last 10 listings, 2 opened at discount, and the rest opened at premiums ranging from 6.49% to 76.19% on the date of listing. 

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