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Review By Dilip Davda on September 13, 2023
• KTL is operating in a highly competitive and fragmented segment of IT-related services.
• The sudden boost in its top and bottom lines for FY23 raises eyebrows and concern over its sustainability.
• Based on super earnings for FY23, the issue appears greedily priced.
• There is no harm in skipping this pricey issue.
ABOUT COMPANY:
Kody Technolab Ltd. (KTL) is in the business of software development services to a diverse set of industries. With a focus on innovation and customer satisfaction, it provides clients with custom software solutions that cater to their specific needs and requirements. The Company is a full-stack development company that provides innovative and cutting-edge digital solutions to clients. The company specializes in helping businesses undergo Digital Transformation by leveraging the latest technologies and trends.
With a keen focus on understanding the unique challenges faced by its clients, it provides customized solutions that are tailored to meet their specific needs. The Company has a presence in the USA, Canada and the UK through sales representatives in that country from where it markets services and solutions. The Company offers a wide range of services that include custom development, AI Consultation and implementation, IOT Services, and IT consulting services. KTL's expertise in these areas allows it to deliver solutions that are not only innovative but also efficient, reliable, and cost-effective. As of June 30, 2023, it had 106 employees on its payroll.
The company operates in a highly competitive and fragmented segment. It is going public with a set of financial data till March 31, 2023, though the IPO is in the month of September 2023.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1720000 equity shares of Rs. 10 each at a fixed price of Rs. 160 per share to mobilize Rs. 27.52 cr. The issue opens for subscription on September 15, 2023, and will close on September 20, 2023. The minimum application to be made is for 800 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.99% of the post-IPO paid-up capital of the company. The company is spending Rs. 0.50 cr. for this IPO process, and from the net proceeds, it will spend Rs. 2.74 cr. for setting up of development center at Gift City - Gandhinagar, Rs. 12.50 cr. for working capital, Rs. 5.80 cr. for repayment/prepayment of certain borrowings, and Rs. 5.98 cr. for general corporate purposes.
Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and KFin Technologies Ltd. is the registrar of the issue. Spread X Securities Pvt. Ltd. - a group company is the market maker of the company.
Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 160 per share in March 2023 and has issued bonus shares in the ratio of 19 for 1 in March 2023, and 695 for 2000 in June 2023. The average cost of acquisition of shares by the promoters is Rs. 4.66, Rs. 4.98, and Rs. 5.78 per share.
Post-IPO, KTL's current paid-up equity capital of Rs. 4.65 cr. will stand enhanced to Rs. 6.37 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 101.98 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, KTL has posted a total revenue/net profit - (loss) of Rs. 2.48 cr. / Rs. - (0.11) cr. (FY21), Rs. 3.84 cr. / Rs. 0.62 cr. (FY22), and Rs. 11.09 cr. / Rs. 3.18 cr. (FY23). Quantum jump in a pre-IPO year in its top and bottom line raises eyebrows and concern over sustainability.
For the last three fiscals, KTL has reported an average EPS of Rs. 10.55 and an average RoNW of 13.51%. The issue is priced at a P/BV of 11.77 based on its NAV of Rs. 13.59 as of March 31, 2023, and at a P/BV of 3.22 based on its post-IPO NAV of Rs. 49.76 per share.
If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 32.06. Based on FY22 earnings, the P/E stands at 164.95. Thus the issue is greedily priced.
DIVIDEND POLICY:
The company has not declared any dividends in the last five years. It will adopt a prudent dividend policy based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, KTL has shown Ksolves and Sigma Solves as their listed peers. They are trading at a P/E of 46.06, and 167.54 (as of September 12, 2023). However, they are not truly comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
This is the 18th mandate from Beeline Capital in the last two fiscals (including the ongoing one). Out of the last 10 listings, 1 opened at par and the rest with premiums ranging from 0.39% to 85.71% on the day of listing.
Review By Dilip Davda on September 13, 2023
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. My reviews do not cover GMP market and operators game plans. Readers must consult a qualified financial advisor before making any actual investment decisions, based the on information published here. With entry barriers, SEBI wants only well-informed investors to participate in such offers. With crazy listings in the recent past, SME IPOs drew the attention of investors across the board and lead to seer madness. However, as SME issues have entry barriers and continued low preference from the broking community, any reader taking decisions based on any information published here does so entirely at their own risk. The above information is based on information available as of date coupled with market perceptions. The Author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Kody Technolab Limited offers an early investment opportunity in Kody Technolab Limited. A stock market investor can buy Kody Technolab IPO shares by applying in IPO before Kody Technolab Limited shares get listed at the stock exchanges. An investor could invest in Kody Technolab IPO for short term listing gain or a long term.
Read the Kody Technolab IPO recommendations by the leading analyst and leading stock brokers.
Kody Technolab IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Kody Technolab IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Kody Technolab IPO is to avoid.
As per the analysis by our lead analyst Mr. Dilip Davda, we suggest you to avoid the Kody Technolab IPO.
The Kody Technolab IPO allotment status will be available on or around September 25, 2023. The allotted shares will be credited in demat account by September 27, 2023. Visit Kody Technolab IPO allotment status to check.
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