Sattrix Info BSE SME IPO review (May apply)

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Review By Dilip Davda on June 1, 2024

•    The company is engaged in developing customer-centric cyber security solutions.
•    It is operating in a highly competitive and fragmented segment.
•    After static performances for FY21 and FY22, it marked boosted top and bottom lines for FY23.
•    Small equity post-IPO indicates longer gestation for migration.
•    Based on FY24 annualized earnings, the issue appears fully priced. 
•    Well-informed investors may park funds for the medium to long term.

ABOUT COMPANY:
Sattrix Information Security Ltd. (SISL) is in the business to develop customer-centric cyber security solutions, it aims to deliver end-to-end cybersecurity services to enterprises in the India, USA and Middle East (UAE). With a decade of experience, the company has established itself as a trusted partner in providing a comprehensive range of cyber security solutions. 

The company helps organizations to protect their data from unauthorized access against and protect against security threats. SISL's data security solutions aim to eliminate data privacy risks to make business processes secure and run smoothly. The company designs and builds data security solutions on cloud and on premise based on the client requirement. It uses best available technologies to develop cyber security solution, and its aim is to develop agile cyber security solution which helps in constant upgrade and its solutions adopt to the changing requirement of the client. As of December 31, 2023, it had 145 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1800000 equity shares of Rs. 10 each at a fixed price of Rs. 121 per share to mobilize Rs. 21.78 cr. The issue opens for subscription on June 05, 2024, and will close on June 07, 2024. The minimum application to be made is for 1000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.47% of the post-IPO paid-up capital of the company. The company is spending Rs. 1.98 cr. for this IPO process, and from the net proceeds of the IPO, it will utilize Rs. 2.52 cr. for capex on purchase of furniture, fixtures, air conditioners etc., Rs. 2.18 cr. for purchase and installation of IT equipment, computer hardware, CCTV, SAN Storage, LAN equipment etc., Rs. 7.56 cr. for development of new product and technology etc., Rs. 2.12 cr. for business expansion, Rs. 2.50 cr. for working capital, and Rs. 2.92 cr. for general corporate purposes. 

The issue is solely lead managed by ISK Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd., is the registrar to the issue. Sunflower Broking Pvt. Ltd., is the market maker for the company. The IPO is underwritten 94.89% by ISK Advisors and 5.11% by Sunflower Broking. 

The company has issued entire equity capital at par value so far, and has also issued bonus shares in the ratio of 499 for 1 in October 2023. The average cost of acquisition of shares by the promoters is Rs. 0.02 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 5.00 cr. will stand enhanced to Rs. 6.80 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 82.28 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 21.20 cr. / Rs. 1.94 cr. (FY21), Rs. 23.49 cr. / Rs. 2.14 cr. (FY22), Rs. 37.76 cr. / Rs. 4.00 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 2.51 cr. on a total income of Rs. 30.62 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 6.07, and an average RoNW of 31.75%. The issue is priced at a P/BV of 4.18 based on its NAV of Rs. 28.94 as of December 31, 2023, and at a P/BV of 2.27 based on its post-IPO NAV of Rs. 53.31 per share.

According to the management, it has around 10% revenue from exports which will rise to around 40% to 50% post planned expansion. Its entry in global market resulted in boosted top and bottom lines from FY23 onwards. The company is serving on a B2B model with tailor made solutions, and this aspect is the major focus of the company.  

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 24.59. Thus the issue appears fully priced. 

For the reported periods, the company has posted PAT margins of 9.18% (FY21), 9.34% (FY22), 10.93% (FY23), 8.26% (9M-FY24), and RoCE margins of 50.43%, 28.59%, 42.67%, 20.93% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. 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 Systango Techno., Dev Information, and TAC Infosec, as their listed peers. They are trading at a P/E of 20.3, 27.6 and 71.4 (as of May 31, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 8th mandate from ISK Advisor in the last five fiscals (including the ongoing one), out of the last 7 listings, 1 opened at discount and the rest with premiums ranging from 1.08% to 49.21% on the date of listing. 

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