eMudhra IPO review (May apply)

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Review By Dilip Davda on May 12, 2022

•    EML is the largest licensed certifying authority in India for digital signature certificates.
•    It has posted growth in its top and bottom lines for the reported periods.
•    Based on its set of financial data, the issue is fully priced.
•    Scrip may generate a fancy post listing being the first mover in the segment.
•    Investment may be considered from a long term perspective.

ABOUT COMPANY:
eMudhra Ltd. (EML) is the largest licensed Certifying Authority ("Certifying Authority" or "CA") in India with a market share of 37.9% in the digital signature certificates market space in Financial Year 2021 has grown from 36.5% in Financial Year 2020. (Source: Company commissioned report titled "Digital Security and Paperless Transformation Market" dated November 8, 2021, from Frost and Sullivan). 

It is engaged in the business of providing Digital Trust Services and Enterprise Solutions to individuals and organisations functioning in various industries. Under Digital Trust Services, EML issues a range of certificates including individual/organizational certificates, SSL/TLS certificates and device certificates (used in IoT use cases) to build a digital trust backbone. Under its Enterprise Solutions vertical, the company offers a diverse portfolio of Digital Security and Paperless Transformation Solutions, complementing Digital Trust Services business, to customers engaged in different industries, thereby making the Company a 'one stop shop' player in secure digital transformation to provide a wide spectrum of services and solutions from issuance of certificates as a certifying authority to offering identity, authentication and signing solutions.

With more than 50 million digital signature certificates issued since its inception, the Company caters to all kinds of subscribers who use digital signature certificates for income tax return filing, filings with the Ministry of Corporate Affairs (Registrar of Companies), tenders, foreign trade, banking, railways and many other needs. EML works closely with large government and banking customers like the 20+ public and private sector banks and state governments. (Source: Company commissioned report titled "Digital Security and Paperless Transformation Market" dated November 8, 2021, from Frost and Sullivan). 

It has been identified and ranked amongst the '20 Most Promising Tech Solution Providers for Government & Public Sector 2019' by CIO Review India. EML is the only Indian company to be admitted as a member of the European Cloud Signature Consortium as well as Certifying Authority / Browser Forum, a global forum that governs the use of SSL/TLS certificates and to be accredited to Webtrust, which makes EML's digital signature certificates directly recognized by browsers across the world allowing it to issue digital signature certificates in many countries. (Source: Company commissioned report titled "Digital Security and Paperless Transformation Market" dated November 8, 2021, from Frost and Sullivan). The Company has a strong digital signature certificate expertise and is the only Indian company to be directly recognized by renowned browsers and document processing software companies such as Microsoft, Mozilla, Apple and Adobe allowing it to sell digital identities to individuals/organizations and issue SSL/TLS certificates for website authentication globally. (Source: Company commissioned report titled "Digital Security and Paperless Transformation Market" dated November 8, 2021, from Frost and Sullivan).  Its Enterprise Solutions are developed and are built on the principle of delivering digital trust by helping users seamlessly identify, authenticate and authorize or sign digital transactions thus accelerating the transition to a presence-less and paperless way of doing business.

As of December 31, 2021, it has 91,259channel partners for Digital Trust Services spread across various States and Union Territories in India and out of 539 system integrator partners, 267 are present in India and 272 are present internationally in the United States of America, Europe, Middle East and Africa and the Asia Pacific. As of December 31, 2021, it had 664 full-time employees, including 240 employees in the R&D. EML is operating in a highly competitive segment.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for repayment/prepayment of certain borrowings (Rs. 35.00 cr.), working capital (Rs. 40.22 cr.), purchase of additional equipment (Rs. 46.36 cr.), product development (Rs. 15.03 cr.), investment in eMudhra INC (Rs. 15.27 cr.) and general corporate purposes, EML is coming out with a maiden combo IPO to mobilize Rs. 412.79 cr. (approx. 16124450 shares) at the upper cap of the issue price. EML is issuing approx. 6289056 fresh equity shares worth Rs. 161.00 cr. and an offer for sale of 9835394 equity shares (approx. Rs. 251.79 cr.). The company has announced a price band of Rs. 243 - Rs. 256 per share of Rs. 5 each. The issue opens for subscription on May 20, 2022, and will close on May 24, 2022. Minimum application is to be made for 58 shares and in multiples thereof, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 20.65% of the post IPO paid up capital of the company. It has allocated 50% for QIBs, 15% for HNIs and 35% for the Retail category of investors. 

The joint Book Running Lead Managers (BRLMs) to this issue are IIFL Securities Ltd., Yes Securities (India) Ltd. and Indorient Financial Services Ltd. while Link Intime India Pvt. Ltd. is the registrar to the issue.  

The company has issued major equity shares at par and has allotted shares on amalgamation for a consideration other than cash. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NIL, Rs. 1.19, Rs. 1.76, Rs. 1.92, Rs. 2.47 and Rs. 3.79 per share. 

Post-IPO, EML's current paid-up equity capital of Rs. 35.89 cr. will stand enhanced to Rs. 39.04 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 1998.65 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, EML has (on a consolidated basis) reported total revenue/net profit of Rs. 101.68 cr. / Rs. 17.44 cr. (FY19), Rs. 116.80 cr. / Rs. 18.42 cr. (FY20) and Rs. 132.45 cr. / Rs. 25.36 cr. (FY21). For the first nine months of FY22 ended on December 31, 2021, it has earned a net profit of Rs. 30.34 cr. on total revenue of Rs. 138.30 cr. 

For the last three fiscal, the company reported an average EPS of Rs. 2.45 and an average RoNW of 18.00%. The issue is priced at a P/BV of 12.79 based on its NAV of Rs. 20.02 as of December 31, 2021, and at a P/BV of 5.87 based on its post-IPO NAV of Rs. 43.61.

If we annualise FY22 earnings and attribute it to the fully diluted post IPO equity base, then the asking price is at a P/E of 49.42, making it a fully priced offer. 

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

COMPARISON WITH LISTED PEERS:
As per offer documents, EML has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORDS:
The three BRLMs associated with this issue have handled 27 public issues in the last three years, out of which 13 issues closed below the issue price on listing dates. 

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