Thinking Hats NSE SME IPO review (May apply)

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Review By Dilip Davda on September 21, 2024

•    The company is engaged in event design, production, corporate MICE, social and virtual events etc. 
•    It posted growth in its top and bottom lines for the reported periods. 
•    Based on FY24 performance, the issue appears aggressively priced.
•    It is operating in a highly competitive and fragmented segment.
•    Well-informed investors may park moderate fund for medium term. 

ABOUT COMPANY:
Thinking Hats Entertainment Solutions Ltd. (THESL) has evolved from a premier concept development, event design and production company that specializes in live events, corporate, MICE (Meetings, Incentives, Conferences and Exhibitions), social and virtual events to an OTT content production and experiential marketing company with a strong focus on content development, intellectual property curation and tech centric product development.

With more than a decade of experience in creating events and experiences, THESL is a team of visionaries who convert clients dreams into reality. Its creative and personalized approach executes every event with the utmost professionalism and provides clients with dependable solutions and the finest attention to detail. The company began its event management and retail visual merchandising since incorporation and has been offering event management services related to Corporates Events, Corporate Meetings, Conference Management, Brands and Product Launches, Lifestyle and Fashion Events, Exhibitions & Fairs, Entertainment Show Management, Pan-India Ground Activations and Artist Management among others in India. 

Its Event Management services are offered from Media, Retail, Financial, Food, Education, Healthcare and Technology industries. It also provides prominent display and retail visual merchandise with a broad spectrum of offerings and in-store solutions to various retail stores. With exclusive content made for platforms such as Netflix, Amazon, Sony Liv, MX Player, Disney+Hotstar, Voot, Zee5, etc. OTT Platforms have become increasingly popular in recent years due to their convenience and flexibility, allowing consumers to watch their favourite shows and movies on a variety of devices, including smartphones, tablets, laptops, and smart TVs. 

They also offer a wider range of content options compared to traditional cable TV. The contracts for OTT are typically 6 to 10 episodes for 45- 60-minute episodes, which then gets extended to multiple seasons based on the popularity of the series. Realising the opportunity in OTT space and the expertise of management team, the Company has ventured into production of OTT contents in the year 2019. Creativity and courage are the core values at Thinking Hats' work culture. As a part of its storytelling expertise, Thinking Hats has produced two web series for OTT platforms i.e., "Aapkey Kamrey Me Koi Rehta Hai" and "Kathmandu Connection 2", and one Bengali Movie "Onek Diner Pore".

Apart from movies and OTT web series, it also makes short films for YouTube content and corporate event movies. It recognizes that Artificial Intelligence (AI), Augmented Reality (AR), Visual Reality (VR), photos, content licencing including music & videos, animation and others are key growth areas, and the company is committed to expanding its business in these areas. As of June 07, 2024, it had 35 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3429000 equity shares of Rs. 10 each to mobilize Rs. 15.09 cr. (at the upper cap). It has announced a price band of Rs. 42 - Rs. 44 per share. The issue opens for subscription on September 25, 2024, and will close on September 27, 2024. The minimum application to be made is for 3000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 27.46% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 8.40 cr. for working capital, Rs. 2.00 cr. for repayment/prepayment of certain borrowings, and the rest for general corporate purposes.

The issue is solely lead managed by Horizon Financial Pvt. Ltd., MAS Services Ltd. Is the registrar to the issue, while Giriraj Stock Broking Pvt. Ltd. Is the market maker. 

Having issued initial equity shares at par so far, the company issued/converted further equity shares in the price range of Rs. 25 - Rs.236.00 per share between January 2024, and June 2024. It has also issued bonus shares in the ratio of 9 for 1 in May 2024. The average cost of acquisition of shares by the promoters is Rs. 1.00, and Rs. 1.68 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 9.06 cr. will stand enhanced to Rs. 12.49 cr. Based on the upper cap of IPO price band, the company is looking for a market cap of Rs. 54.94 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 12.45 cr. / Rs. 0.37 cr. (FY22), Rs.  22.28 cr. / Rs. 2.01 cr.  (FY23), Rs. 26.70 cr. / Rs. 3.09 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 2.63 and an average RoNW of 27.40%. The issue is priced at a P/BV of 3.50 based on its NAV of Rs. 12.56 as of March 31, 2024, and at a P/BV of 2.11 based on its post-IPO NAV of Rs. 20.89 per share (at the upper cap).

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 17.74. Based on FY23 earnings, the P/E stands at 27.33. Thus the issue relatively appears aggressively priced. Super performance in a pre-IPO year raises eyebrows and concern over its sustainability, as the company is operating in a highly competitive and fragmented segment. 

The company reported PAT margins of 3.21% (FY22), 9.07% (FY23), 11.61% (FY24), and RoCE margins of 11.86 %, 29.25%, 29.37% for the referred periods, respectively.

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. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has shown E Factor and Inspire Films, as their listed peers. They are trading at a P/E of 19.6, and 17.9 (as of September 20, 2024). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 9th mandate from Horizon Financial in the last two fiscals (including the ongoing one). Out of the last 7 listings, 2 opened at discount, 1 at par and the rest with premiums ranging from 8.47% to 141.23% on the date of listing.

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