SBL Infratech BSE SME IPO review (Avoid)

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Review By Dilip Davda on September 13, 2021

•    SBLIL is engaged in the realty sector as an estate broker cum developer.
•    It has non-impressive minuscule financial performance so far.
•    It is operating in a highly competitive and fragmented market. 
•    It has done jugglery on its face value of shares during FY20 - FY22.
•    The issue is exorbitantly priced based on its financial data. 
•    There is no harm in ignoring this highly-priced issue. 

PREFACE:
As per the first ad for the announcement of its IPO, SBLIL indicated a price of Rs. 210 per share for 213600 shares of Rs. 10 each to mobilize Rs. 4.49 cr. on August 14, 2021, and it withdrew this plan soon thereafter and postponed the issue till further notice. At that time the issue was scheduled between August 18, 2021, to August 23, 2021. Now the company is coming with the same number of shares but at a price of Rs. 111 per share to mobilize Rs. 2.37 cr. Thus while the number of shares to be issued remains the same, but the price is nearly halved. This shows something fishy for this IPO. The company did some jugglery for its face value following sub-division and consolidation in March 2020 and June 2021 and the final equity as of 18 June 2021 following consolidation was Rs. 0.57 cr. whereas for March 31, 2021, it was Rs. 0.60 cr. Thus how some shares vanished during consolidation remains a million-dollar question. (see page 50 of the prospectus). The reason for the drastic changed in the IPO pricing is better known to the lead manager and promoters of the company. Vested interest game post listing on this fully managed IPO is not ruled out.

ABOUT COMPANY:
SBL Infratech Ltd. (SIL) primarily started as a real estate brokerage firm. Thereafter it ventured into selling plots of land and affordable housing development projects. 

As on the filing of this offer documents, it had a total 3 full-time employees on its roll and few marketing agents on the commission basis. It has made tall claims about its work quality, execution of projects and future prospects despite being in a highly competitive and fragmented marketplace. It has not taken any type of insurance for its business. 

ISSUE DETAILS/CAPITAL HISTORY:
To part finance its plans for working capital (Rs. 1.30 cr.), general corpus fund needs (Rs. 0.55 cr.) SIL is coming out with a maiden issue of 213600 equity shares of Rs. 10 each at a fixed price of Rs. 111 per share to mobilize Rs. 2.37 crores. The issue opens for subscription on September 16, 2021, and will close on September 20, 2021. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.33% of the post issue paid-up capital of the company. SIL will spend Rs. 0.52 cr. for this IPO process. This indicates a fully structured funding arrangement process for this issue. 

The issue is solely lead managed by Fast Track Finsec Pvt. Ltd. and Skyline Financial Services Pvt. Ltd. is the registrar to the issue. Nikunj Stock Brokers Pvt. Ltd. will be the market maker for this issue. 

Having issued initial equity at par. SBLIL issued further equity at a price of Rs. 510 per share (on the basis of Rs. 10 FV) in August 2020. It has also issued bonus shares in the ratio of 4.9 to 1 in February 2020. The average cost of acquisition of shares by the promoters is Rs. NIL and Rs. 0.01 per share. 

Post issue, company's current paid-up equity capital of Rs. 0.60 cr. to Rs. 0.81 cr. (811270 shares) post this issue. At the issue price, the company is looking for a market cap of Rs. 9 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last four fiscals, SBLIL has posted turnover/net profits of Rs.  0.19 cr. / Rs. 0.002 cr. (FY18), Rs. 0.20 cr. / Rs. 0.004 cr. (FY19), Rs. 1.49 cr. / Rs. 0.11 cr. (FY20) and Rs. 0.40 cr. / Rs. 0.02 cr. (FY21). Super performance for FY20 raised eyebrows and is a major concern as well. 

For the last three fiscals, SBLIL has reported an average EPS of Rs. 0.11 and an average RoNW of 54.27% (really surprising data). The issue is priced at a P/BV of 4.38 based on its NAV of Rs. 25.33 per share (of Rs. 10 FV) as of March 31, 2021. (Thanks to the rights issue at Rs. 510 per share that boosted its reserves), and at a P/BV of 1.50 based on its NAV of Rs. 73.93. (following premium collected on IPO). 

If we attribute FY21 earnings on fully diluted post IPO equity, then the asking price is at a P/E of 528 making it an exorbitantly priced issue. 

COMPARISON WITH LISTED PEERS:
As per offer documents, the company has shown Maruti Infra and Sanmit Infra as its listed peers. They are currently trading at a P/E of 46.35 and 64.89 (as of September 14, 2021). However, they are not truly comparable on an apple to apple basis. 

DIVIDEND POLICY:
The company has no formal dividend policy in place and has not paid any dividend so far. It will follow a prudent dividend policy post listing based on its financial performance and future prospects. 

MARCHANT BANKER'S TRACK RECORDS:
On the one hand, Annexure A is missing from the offer documents and on the other, the Lead Manager's website is not updated and is not showing its track records as of the date of writing this review. (i.e. September 14, 2021, at 10.15 hrs.). 

However, as per the data available on our website, this is the 5th mandate from Fast Track in the last four fiscals (including the ongoing one) and out of the last 4 listings, two opened at discount and the rest with premiums ranging from 0.83% to 8.85%. Thus It has a poor track record.

SBL Infratech Limited IPO FAQs