Enser Communication NSE SME IPO review (May apply)

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Review By Dilip Davda on March 13, 2024

•    ECL is in the business of communication related services and supply of equipments.
•    It posted sudden jump in its bottom lines from FY23 onwards, that raise eyebrows.
•    The company is operating in a highly competitive and fragmented segment. 
•    Based on FY24 super earnings, the issue appears fully priced. 
•    Well-informed/cash surplus investors may park funds for the long term rewards.

ABOUT COMPANY:
Enser Communications Ltd. (ECL) was incorporated with the main objects to carry on activities in the communications field with regards to call centers, outsourcing, database management, web services, information systems, software and hardware selling and maintenance & knowledge based projects in the communications field; and to carry on the activities in the field of trading, exporting, importing, processing, buying, selling, marketing of various types communication equipment's or instruments or products or to provide facilitate of networking, mobiles services, computer programming, data processing, business outsourcing, e-commerce facilities, web site, portal, internet service units, systems analyzing and to provide services of establishing Management Information Systems, maintenance and applications, customer contract development resources, training and certification of any products and design and to provide training and education facilities for employees or to customers and others.

Enser Communications was established and commenced its business in May 2008, Enser is in the business of the "Business Process Management Platform". It has also empaneled with National Health Authority a Government of India Entity in February, 2022 and State Health Authority, Gujrat, December 2023.

Recently the company has expanded the service providing capacity of business activity the company by setting up service facilitating offices: a) 31A, Udyog Vihar in August, 2022 with a workstation capacity of 701 seats. b) Arihant Aura, Navi Mumbai in September, 2022 with a workstation capacity of 216 seats. c) Set up New Office Space at Bangalore in November, 2022. d) EFC Tower, Navi Mumbai in May, 2023 with a workstation capacity of 221 seats.

Further, as a part of expansion of business activity the company is setting up a new service unit at 104, Udyog Vihar, Phase 4 Gurugram, Haryana with 500+ seats capacity, to provide and facilitate customer acquisition and other BPM services to clients. Enser's BPM technology enabled platform that integrates with voice, chat, email, IVRS, and other social media engagements for customer acquisition as well as customer service strategies, specializing in Client Interaction Management. Enser provides and facilitates to clients, thereby fostering mutual growth. Enser's comprehensive service offerings span across Business Analytics, Customer Relationship Management (CRM), Interactive Voice Response Systems (IVRS), and Customer Interaction Management solutions. ECL helps its clients manage their Customer Life cycle using its Business Process Management Platform. It facilitates rich consumer engagement and understanding by crafting end-to-end consumer interaction solutions that are flexible and customized to deliver for its client's business objectives. As of December 31, 2023, it had780 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden fixed price IPO of 2310000 equity shares of Rs. 10 each at a fixed price of Rs. 70 per share to mobilize Rs. 16.17 cr. The issue opens for subscription on March 15, 2024, and will close on March 19, 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 26.50% of post-IPO paid-up equity capital of the company. It is spending Rs. 0.70 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 7.25 cr. for setting up of new service unit, Rs. 4.37 cr. for working capital, and Rs. 3.85 cr. for general corporate purposes. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd.  Ltd., and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. BN Rathi Securities Ltd. is the market maker for the company. 

Having converted initial equity capital at par, the company issued further equity shares at a fixed price of Rs. 6752.38 per share on September 2023, and has also issued bonus shares in the ratio of 600 for 1 in November 2023. The average cost of acquisition of shares by the promoters is Rs. 0.12, and Rs. 9.98 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 6.41 cr. will stand enhanced to Rs. 8.72 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 61.01 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit/ -(Loss) of Rs. 9.61 cr. / Rs. - (0.12) cr. (FY21), Rs. 16.87 cr. / Rs. 0.78 cr. (FY22), and Rs. 25.91 cr. / Rs. 1.60 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 2.14 cr. on a total revenue of Rs. 18.16 cr. Thus the sudden boost in its bottom lines from FY23 onwards raise eyebrows as well as concern over the sustainability of such margins going forward.  

For the last three fiscals, it has reported an average EPS of Rs. 1.73, and an average RONW of 0.30%. The issue is priced at a P/BV of 6.46 based on its NAV of Rs. 10.84 as of September 30, 2023, and at a P/BV of 2.79 based on its post-IPO NAV of Rs. 25.10 per share.

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 14.26. Based on FY23 earnings, the P/E stands at 38.04. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of - (1.22) % (FY21), 4.62% (FY22), 6.18% (FY23), It has not given RoCE data for the said periods and has also suppressed data for H1 of FY24 on PAT and RoCE margins.

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. 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 shown One Point One, Hinduja Global, and eClerx as their listed peers. They are trading at a P/E of 54.8, 55.9, and 22.5 (as of March 13, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Fast Track in the last three fiscals, out of the last 9 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 6.45% to 201.20% on the date of listing.

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