Service Care NSE SME IPO review (Avoid)

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Review By Dilip Davda on July 12, 2023

•    SCL is in the business of providing services such as Workspace and Workforce administration.
•    Its top revenue contributors are L&T, SBI, Omega Health etc. 
•    Based on FY23 super earnings the issue is aggressively priced. 
•    Transparency is missing in its financial data on NAV. 
•    There is no harm in skipping this aggressively priced IPO. 

PREFACE:
There are a few anomalies as far as IPO matters are concerned. While the RHP has shown an allocation of 156000 shares for market maker, 294000 shares for QIBs, 1318000 shares for HNIs and 1318000 shares for Retail investors under "THE ISSUE" on page no. 32, its IPO ad is indicating 50% for QIBs, 15% for HNIs and 35% for Retail excluding 156000 shares of the market maker. Secondly, for the pre-IPO NAV details on page no. 71, (though it has shown financial performance till January 31, 2023, on pages no. 33 and 34), it has shown a NAV of 6323.20 as of March 31 2022. This is pure suppression of the facts and figures. In fact, it should have given data on NAV as of January 31, 2023. Thus transparency is missing.

ABOUT COMPANY:
Service Care Ltd. (SCL) is incorporated with the objective of providing services such as Workspace Administration Services& Workforce Administration Services across all the business domains. With the overall experience and Market presence of more than 23 years of promoters, the company have established its creditability with its customers and partners across the country. 

Primarily Workspace Administration services cover all the Integrated Facility Management and Business Services, on the other hand, Workforce Administration services cover all kinds of staffing solutions, outsourced recruitment processes and payroll management. The Company currently 5,800+ associate team (including contractual employees). SCL currently services clients from the Manufacturing, Engineering, Infrastructure, Information Technology, Government & Banking, healthcare, Staffing & Recruitment, Food, Education, and FMCG verticals.

Its client list includes L & T, L & T Geostructure, SBI, Omega Health etc. and are the top contributors to SCL's revenue.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3086000 equity shares of Rs. 10 each via the book-building route. It has announced a price band of Rs. 63 - Rs.67 per share and mulls mobilizing Rs. 20.68 cr. at the upper cap. The issue opens for subscription on July 14, 2023, and will close on July 18, 2023. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME. The issue constitutes 26.84% of the post-issue paid-up capital of the company. The company is spending Rs. 3.08 cr. for this IPO process and from the net proceeds of the IPO funds, it will utilize Rs. 15.00 cr. for working capital and the rest for general corporate purposes. Higher spending for IPO indicates a fully structured mode of IPO. 

After reserving 156000 shares for the market maker portion, the company has allocated not more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. 

Swastika Investmart Ltd. is the sole Book Running Lead Manager and Integrated Registry Management Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company.  

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 8000 per share in December 2022 and has also issued bonus shares in the ratio of 672 for 1 in February 2023. The average cost of acquisition of shares by the promoters is Rs. 0.003, Rs. 0.01, and Rs. 11.88 per share.

Post-IPO, SCL's current paid-up equity capital of Rs. 8.41 cr. will stand enhanced to Rs. 11.50 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 77.04 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, SCL has posted a total revenue/net profit of Rs. 108.12 cr. / Rs. 1.36 cr. (FY20), Rs. 89.33 cr. / Rs. 0.23 cr. (FY21), and Rs. 115.02 cr. / Rs. 1.74 cr. (FY22). For 10M of FY23 ended on January 31, 2023, it earned a net profit of Rs. 3.02 cr. on a turnover of Rs. 132.18 cr. The super performance for 10M-FY23 raises eyebrows and concerns over sustainability.  

For the last three fiscals, SCL has reported an average EPS of Rs. 1177.75 and an average RoNW of 20.73%. The issue is priced at a P/BV of 0.11 based on its NAV of Rs. 6323.20 as of March 2022, and at a P/BV of 2.41 based on its post-IPO NAV of Rs. 27.85. Both these data are based on FY22 performance and the pre-bonus paid-up equity capital. Thus this is just an eyewash to lure investors. 

If we attribute annualized FY23 super earnings on the post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 21.20. Thus the issue is aggressively priced. 

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 ITCON E Solu, Integrated Personnel and Quess Corp as their listed peers. They are currently trading at a P/E of 12.51, 18.92, and 49.65 (as of July xx, 2023). However, they are not truly comparable on an apple-to-apple basis. Peer comparison with Quess Corp appears to be an eyewash.  

MERCHANT BANKER'S TRACK RECORD:
This is the 6th mandate from Swastika Invest in the last three fiscals (including the ongoing one). Out of the last 5 listings, 1 opened at discount, 1 at par and the rest listed at premiums ranging from 0.42% to 36.25% on the listing date. Thus the BRLM has an average track record.

Service Care IPO FAQs