Focus Business BSE SME IPO review (May apply)

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Review By Dilip Davda on June 26, 2021

•    FBSL is engaged in providing services for debt collections.
•    It has shown a stagnant top line since FY 2018.
•    Though the issue appears reasonably priced, sustainability of earnings is a concern.
•    Based on its tiny equity capital post IPO, it will take a long time for migration to the mainboard.

ABOUT COMPANY:
Focus Business Solution Ltd. (FBSL) evolved as a financial services company and is engaged in the business of debt collection services for Banks, NBFC and financial institutions. The company has entered an agreement with India's leading banks, financial institutions and non-banking financial companies to act as authorized recovery/collection agents on behalf of them.

FBSL focuses strategically timed action based on the ageing of delinquent account with an emphasis on traditional methods such as tele-calling and field visits. It deploys its manpower to visit and collect overdue payments of loans/credit cards/credit facilities advanced to borrowers by clients, who engage with the company in service agreements. In occasional cases, FBSL needs to trace the new address and contact details of borrowers as delinquent borrowers may relocate their address.

Through its call centres, the company also do follow up over telecalls, to the defaulters for overdue payments. FBSL has a fully equipped call centre with 64 (sixty-four) work station along with a call recording, dialler and CRM facility. The company also does repossessions of vehicles or other hypothecated assets on the request of its clients, in case defaulting borrowers unable to repay of its loan overdue. FBSL has worked on over two lacs customer's database from pickup to recovery category of all kind of products such as Personal Loan, Business Loan, Vehicle Loan, Loan against properties, two-wheeler loan, equipment loan, SME loans, the Gold loan with different banks and NBFCs with a pool size of more than Rs. 200 cr. The company is working mainly in the Gujarat regions only.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 0.65 cr.), general corpus fund (Rs. 0.30 cr.), FBSL is coming out with a maiden IPO of 642000 equity shares of Rs. 10 each at a fixed price of Rs. 19 per share to mobilize Rs. 1.22 cr.  The issue is opening for subscription on June 30, 2021, and will close on July 05, 2021. Minimum application is to be made for 6000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 28.89% of the post issue paid-up capital of the company. FBSL is spending Rs. 0.27 cr. for this IPO process. This indicates that the issue is pre-sold with arranged funding.

Having issued initial equity at par, the company has raised further equity at Rs. 50 per share in February 2020, it has also issued bonus shares in the ratio of 48 for 1 in February 2020 and 1 for 1 in October 2020.  The average cost of acquisition of shares by the promoters is Rs.6.65 and Rs. 8.50 per share. Post issue, company's current paid-up equity capital of Rs. 1.58 cr. will stand enhanced to Rs. 2.22 cr. At the IPO pricing, FBSL is looking for a market cap of Rs. 4.22 cr.

The issue is solely lead managed by Navigant Corporate Advisors Ltd. and Purva Sharegistry (India) Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Ltd. is the market maker for this IPO.

FINANCIAL PERFORMANCE:
On the financial performance front, the company has posted turnover/net profits of Rs. 10.24 cr. / Rs. 0.11 cr. (FY18), Rs. 10.74 cr. / Rs.0.12 cr. (FY19) and Rs. 10.91 cr. / Rs. 0.15 cr. (FY20). For the first nine months ended on December 31, 2020, it has earned a net profit of Rs. 0.20 cr. on a turnover of Rs. 7.99 cr. Super earnings in pre-IPO year raise concern. Its top line has remained stagnant for all these years while profit has seen negligible growth.

For the last three fiscals, FBSL has posted an average EPS of Rs. 2.48 and an average RoNW of 16.25%. The issue is priced at a P/BV of 1.28 based on its NAV of Rs. 14.86 as of December 31, 2020, and at a P/BV of 1.18 based on its post-issue NAV of Rs. 16.06 per share.

If we annualize FY21 earnings, then the asking price is at a P/E of around 7.67.

DIVIDEND POLICY:
The company has not declared any dividend on the Equity Shares in the past five financial years. It will follow a prudent dividend policy post listing based on its financial performance and the business prospects going forward.

COMPARISON WITH LISTED PEERS:
According to offer documents, FBSL has no listed peers to compare with.

MERCHANT BANKER'S PERFORMANCE:
This is the 19th mandate from its stable in the last five fiscals including the ongoing one. Out of the last 10 listings, 1 opened at discount, 2 at par and the rest with premiums ranging from 0.125% to 20% on the day of listing. The last issue from this merchant banker was in September 2019.

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