Tridhya Tech NSE SME IPO review (Avoid)

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Review By Dilip Davda on June 25, 2023

•    TTL is a full-service software developer for the IT segment.
•    Its offer document has many anomalies and mismatches.
•    Its basis of IPO price data is too misleading as it is based on pre-bonus equity.
•    The issue is greedily priced based on FY23 earnings.
•    There is no harm in skipping this "high risk/low return" bet.

ABOUT COMPANY:
Tridhya Tech Ltd. (TTL) is engaged in full-service Software Development which includes all IT services and resources. It provides turnkey consultancy services to various industries like e-commerce, Real estate, transport and Logistics, Insurance and other sectors. It also provides services related to e-commerce development, Enterprise Content Management, Bespoke Web Management, Mobile App, Development, API Development, Product Support & Maintenance, Front End Development and Graphic design.

TTL provides customized software products, which start from the initial concept of the product requirement, designing the architecture, coding and testing, and deploying to the final deployment of the product. It also provides post-deployment support on time to time basis to clients. The company also provides project management, consultation services, maintenance and support services to ensure the successful completion of the project and the longevity of the software. This helps to ensure that the software is properly developed and deployed, meeting the expectations of the client. As of May 31, 2023, the total employee strength was 211. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden book-building route IPO of 6288000 equity shares of Rs. 10 each with a price band of Rs. 35 - Rs. 42 per share. The company mulls mobilizing Rs. 26.41 cr. at the upper cap. The issue opens for subscription on June 30, 2023, and will close on July 05, 2023. 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 27.00% of the post-IPO paid-up capital of the company. The company has reserved 5.01% shares for the market maker and from the rest, it has allocated not more than 50% to QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. TTL is spending Rs. 1.61 cr. for this IPO process. The offer document is missing the usage of net proceeds from the IPO. This is really surprising that the company could give the IPO expenses figure, but it missed provision data for repayment of certain borrowings and general corporate purposes. (refer to page 64 of the offer document). 

Interactive Financial Services Ltd. is the sole lead manager and Link Intime India Pvt. Ltd. is the registrar of the issue. Econo Broking Pvt. Ltd. is the market maker for the company. 

Having issued initial equity shares at par, the company issued further equity shares at a price of Rs. 60 per share between February 2022 - April 2022. It has also issued bonus shares in the ratio of 12 for 1 in June 2021, and 9 for 1 in February 2023. The average cost of acquisition of shares by the promoters is Rs. 0.02, Rs. 7.72, and Rs. 8.74 per share. (its rights issue data has a mismatch as it shows an FV of Rs. 5 on page no. 54 and Rs. 10 on page no. 73-74).

Post-IPO, TTL's current paid-up equity capital of Rs. 17.00 cr. will stand enhanced to Rs. 23.29 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 97.81 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, on a consolidated basis, TTL has posed a turnover/net profit of Rs. 14.07 cr. / Rs. 3.43 cr. (FY22), and Rs. 15.08 cr. / Rs. 2.81 cr. (9M-FY23). 

On a standalone basis, the company posted a turnover/net profit of Rs. 4.36 cr. / Rs. 0.24 cr. (FY20), Rs. 8.34 cr. / Rs. 0.86 cr. (FY21), and Rs. 13.55 cr. / Rs. 3.23 cr. (FY22). For 9M of FY23, it earned a net profit of Rs. 1.92 cr. on a turnover of Rs. 9.75 cr. 

For the last three fiscals, TTL has reported an average EPS of Rs. 44.44 and an average RoNW of 65.52%. These are based on standalone and before the February 2023 bonus issue impact. The issue is priced at a P/BV of 0.74 based on its NAV of Rs. 56.58 as of December 31, 2022, and at a P/BV of 0.74 based on its post-IPO NAV of Rs. 56.99 per share (at the upper cap). Its Pre and Post-IPO NAV data is also garbled.

Its RoE and RoCE margins have come down from 156.45% (FY20) to 2.85% (9M-FY23) and 55.83% (FY20) to 9.69% (9M-FY23) respectively. 

If we annualize FY23 earnings and attribute it to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 26.09. Thus the issue appears greedily priced. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Dev Info, Silver Touch and InfoBeans Tech as their listed peers. They are currently trading at a P/E of 38.42, 55.02, and 30.12 (as of June 23, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 10th mandate from Interactive Finance in the last three fiscals (including the ongoing one). Out of the last 9 listings, 2 opened at a discount, 1 at par, and the rest listed at premiums ranging from 0.78% to 20.74% on the listing date. 

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