Globesecure Techno NSE SME IPO review (Avoid)

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Review By Dilip Davda on May 21, 2022

•    GTL is a cybersecurity-focused digital transformation company. 
•    It has posted super earnings for the last 21 months which raises eyebrows.
•    Its Topline has been almost static so far. 
•    Based on super earnings, the issue is fully priced. 
•    There is no harm in ignoring this fully structured offer.

ABOUT COMPANY:
Globesecure Technologies Ltd. (GTL) is a digital transformation company in India with a focus on cyber security. It has executed several cyber security transformation projects, infrastructure, and digital transformation projects for various institutions and also provided similar independent services to clients. Through its wide range of offerings across multiple verticals, GTL possesses capabilities spanning the digital lifecycle of services ranging from consultation, architecture, solution design, and implementation, to monitoring and providing managed services.

The company classified its business into three main aspects i.e. Cyber Security, integrated enterprise solutions and managed services. 

As per offer documents, GTL is generating major revenues from BFSI (Banking Financial Services and Insurance). This segment is highly competitive with many big players in the fray. As of May 16, 2022, it has 16 employees on its payroll. It operates from the premises on leave and license.

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its needs for working capital (Rs. 6.98 cr.), general corporate purposes (Rs. 1.63 cr.), GTL is coming out with a maiden IPO of 3492000 equity shares of Rs. 10 each at a fixed price of Rs. 29 per share to mobilize Rs. 10.13 cr. The issue opens for subscription on May 23, 2022, and will close on May 25, 2022. Minimum application is to be made for 4000 shares and in multiples thereof, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 38.34% of the post issue paid-up capital of the company. GTL is spending Rs. 1.52 cr. for this IPO process. This indicates the issue is financially closed with funding arrangements arrived at. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nirman Share Brokers Pvt. Ltd. is the market maker for this company. 

Having issued initial equity at par, the company issued further equity in the price range of Rs. 15 to Rs. 23 between November 2018 and October 2021. It has shown 604659 shares issued for a consideration at Rs. 23 per share as other than cash (??) for conversion of loans. (Refer to page 69 of the offer documents). The average cost of acquisition of shares by the promoters is Rs. 12.60 and Rs. 13.82 per share. 

Post-IPO, GTL's current paid-up equity capital of Rs. 5.62 cr. will stand enhanced to Rs. 9.11 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 26.41 cr. 

FINANCIAL PERFORMANCE: 
On the financial performance front, for the last three fiscals, GTL has posted turnover/net profits of Rs. 10.43 cr. / Rs. 0.62 cr. (FY19), Rs. 19.24 cr. / Rs. 0.12 cr. (FY20) and Rs. 19.23 cr. / Rs. 1.01 cr. (FY21).  For the first nine months of FY22 ended on December 31, 2022, it has earned a net profit of Rs. 1.11 cr. on a turnover of Rs. 11.17 cr. The sudden boost in its net profits for the last 21 months working raises eyebrows. The top line for the last two fiscals was static and for FY22 9M appears to be lower.  

For the last three fiscals, GTL has reported an average EPS of Rs. 1.28 (basic) and an average RoNW of 9.59%. The issue is priced at a P/BV of 1.64 based on its NAV of Rs. 17.71 as of December 31, 2021, and at a P/BV of 1.32 based on its post-IPO NAV of Rs. 22.04. 

If we annualize FY22 super earnings and attribute it to fully diluted post IPO equity, then the asking price is at a P/E of 17.90. Thus the issue is fully priced with its super earnings for the last 21 months' financial data. The sustainability of such performances going forward raises concern. 

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

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

MERCHANT BANKER'S TRACK RECORDS:
Surprisingly, the Lead Manager's past track record information is missing in the offer document (Final prospectus). However, based on Chittorgarh.com website data, this is the 7th mandate from Fast Track in the last five fiscals (including the ongoing one). Out of the last 6 listings, 2 closed at discount and the rest with premiums ranging from 0.83% to 15.57% on the day of listings. Approval of incomplete offer documents by regulators raises eyebrows. 

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