ITCONS E-Solu BSE SME IPO review (Apply)

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Review By Dilip Davda on February 18, 2023

•    IEL is engaged in providing human resources and related services. 
•    It is now in fast-forward mode after witnessing a setback during the pandemic.
•    Based on its recent earnings, the issue appears reasonably priced. 
•    Though it is in a highly competitive and fragmented segment, it has created a niche place.
•    Investors may consider an investment with a medium to long-term perspective. 

ABOUT COMPANY:
ITCONS E-Solutions Ltd. (IEL) is engaged in the business of providing human resource services to both public and private organizations mostly in the organized sectors in diverse roles and responsibilities since 2007. Its services primarily include 1) Manpower Supply/Recruitment Services; and 2) Manpower Sourcing/Staffing Services.

Incorporated in 2007, it has grown to an 800+ staff team (including contractual employees). IEL has well-known and reputed clients from the Information Technology, Staffing & Recruitment, Food, and FMCG space amongst others, which include MNCs as its clients. Presently its Manpower Supply Services account for a majority of revenues, and Manpower Souring Services contributes to the rest of its revenues. As of November 30, 2022, it had 38 employees on its payroll and 871 associate employees. 

The market for Manpower Services is both highly competitive and rapidly evolving. IEL primarily faces competition from Indian IT services companies as well as international technology services companies which offer broad-based services. The company anticipate this competition to grow as the demand for these services increases and it also expects additional companies to enter the Indian market. 

IEL is a Brand Name in Contingent Workforce Services, Technology Automation and Support Services with industry know-how & learning for more than 15 years. The excellent Management team of professionals from premier institutes with more than 5000 person-years of experience. SLA/KPI-based business Solutions with Project Management-based support services for clients of India and the USA. Full-service Staffing & Recruitment Services. Some of their marquee clients include Wipro Technologies, Central Warehousing Corporation (CWC), Municipal Corporation agencies of Maharashtra Govt., L&T Infotech, MSource, HCL Infotech, MindTree, TVS Electronics, Xebia, SIPL, CMS, Infinite Computers Solutions, Collabera Technologies, Tech Mahindra, etc.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1700000 equity shares of Rs. 10 each at a fixed price of Rs. 51 per share to mobilize Rs. 8.67 cr. The issue opens for subscription on February 28, 2023, and will close on March 02, 2023. The minimum application is to be made for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 33.81% of the post-IPO paid-up equity capital of the company. IEL is spending Rs. 1.27 cr. for this IPO indicating arranged funding. From the net proceeds, it will utilize Rs. 6.00 cr. for working capital and Rs. 1.40 cr. for general corporate purposes. 

Finshore Management Services Ltd. is the sole lead manager and Cameo Corporate Services Ltd. is the registrar of the issue. Nikunj Stock Brokers Ltd. is the market maker for this company. 

Having issued initial equity shares at par, it issued further equity shares at Rs. 60 per share in August and September 2022. It has issued bonus shares in the ratio of 125 for 1 in July 2022, and 1 for 1 in September 2022. The average cost of acquisition of shares by the promoters is Rs. 1.63 and Rs. 5.31 per share. 

Post-IPO, IEL's current paid-up equity capital of Rs. 3.33 cr. will stand enhanced to Rs. 5.03 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 25.65 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, IEL has posted a turnover/net profit of Rs. 8.35 cr. / Rs. 0.11 cr. (FY20), Rs. 8.42 cr. / Rs. 0.08 cr. (FY21), and Rs. 18.20 cr. / Rs. 1.19 cr. (FY22). For H1 of FY23, it earned a net profit of Rs. 1.06 cr. on a turnover of Rs. 16.05 cr. After suffering a setback for FY 21 due to the pandemic, it is poised for a fast-forward mode. 

For the last three fiscals, IEL has reported an average EPS of Rs. 2.23 and an average RoNW of 30.88%. The issue is priced at a P/BV of 3.67 based on its NAV of Rs. 13.89 as of September 30, 2022, and at a P/BV of 1.93 based on its post-IPO NAV of Rs. 26.43 per share.  

If we annualize FY23 earnings and attribute it to the post-IPO fully diluted equity capital, then the asking price is at a P/E of around 12.09. Thus issue appears reasonably priced. 

Top 10 customers are contributing over 98% to its top line. Around 90% of revenue is from the IT staffing business and the rest from other activities. 

According to management, though there are reports of axing staff by IT, e-commerce and unicorn industries, IEL has no impact of such a move as it has long-term contracts for specialized staffing. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Integrated Personnel Services and ANI Integrated Services as their listed peers. They are currently trading at a P/E of around 20.21 and 30.99 (as of February 17, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 33rd mandate from Finshore Management in the last five fiscals (including the ongoing one). Out of the last 10 listings, 2 opened at discount, 1 at par and the rest at premiums ranging from 0.91 % to 150 % on the listing date. Thus it has an average track record.

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