Trust Fintech NSE SME IPO review (Apply)

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Review By Dilip Davda on March 21, 2024

•    The company enjoys niche place in BFSI segment for its SaaS products.
•    It posted inconsistency in its top and bottom lines from FY21 to FY23.
•    While based on FY23 earnings, the issue is aggressively priced, based on annualized FY24 earnings, it appears reasonably priced. 
•    H1-FY24 margins raise concern over its sustainability going forward.
•    However, investors may park funds for the medium to long term rewards.

ABOUT COMPANY:
Trust Fintech Ltd. (TFL) is a Nagpur based SaaS Product focused company which has carved a niche in providing Core Banking Software, IT Solutions, ERP Implementation and Customized Software Solutions Development, SAP B1 and Offshore IT services for the BFSI sector. The company has evolved in the last 25 years and adapted to the technological and market shifts to reach the current business model and product version. Trust Fintech is consistently expanding its business footprints in India and Globally by adapting to ever-changing regulatory compliances for the global BFSI sector.

It has invested in developing more than 10+ (ten) banking related products for Commercial and Cooperative Banks and Financial Institutions, which comprise Core Banking Software, Loan Origination software, GST compliance software, Financial Accounting & Billing Software, GST Suvidha provider, SAP B1 Services (for Implementation, Support and Add-on Development), Various add-on modules for Statutory Report Generation, ATM Reconciliation, Anti-Money Laundering, Agency Banking, Mobile Banking leveraging end to end solutions to address the evolving needs of banking Solutions. 

Since it provides banking solutions, therefore all the product solutions are built by keeping in mind the RBI compliance requirements, which the banks have to follow and also the product is designed in configurable architect, which gives the flexibility to incorporate the changes which may be required to be complied by the banks, pursuant to the change in the policy and compliances as notified by the RBI. Also, TFL's Core Banking Product (TrustBankCBS) is flexible enough to customize for the Central Bank requirements, by customizing this software, it has served this software in India Shrilanka, Nepal, California, Gambia, Tanzania, Ghana, Liberia, Nigeria, Zimbabwe, and few more countries.

The company is majorly involved in the Implementation, and deployment of Core Banking Software i.e. TrustBankCBS or MicroFinS. TrustBankCBS mainly serves the needs of medium to large banks & financial institutions and MicroFinS serves the needs of Small & growing Co-operative Societies, SACCOS & similar banking institutions. Its flagship product, TrustBankCBS, is a web-based software. It is available "on-premises with infrastructure" i.e. it offers the flexibility to the customer to deploy TrustBankCBS on their own premises with customized infrastructure. ices. It provides features like digital banking interfaces, statutory compliance reports, and anti-money laundering tools, contributing to operational transparency and regulatory adherence. With modules for treasury management, funds automation, and business intelligence, TrustBankCBS empowers banks to operate efficiently, meet compliance requirements, and deliver a superior customer experience. 

On the other hand, MicroFinS is a cloud-based Core Banking Solution for the Savings & Credit for Co-operative Society (SACCOS), Credit Unions, Microfinance Institutions. Developed on an open-source platform i.e. PHP, MYSQL Running on Ubantu Linux OS. MicroFinS offers a suite of solutions, covering diverse accounts, deposits, centralizable configurations, business intelligence, loans, and statutory compliances. Its graphical Business Intelligence reports enable quicker decision-making, while features like configurable loan products and centralized parameters streamline operations, making it a valuable asset for SACCOS with a focus on affordability and efficiency.

Currently, TFL serving customers in more than 15 States of India and in more than 10 countries including California, Nepal, Gambia, Ghana, Liberia, Nigeria, Sri Lanka, Tanzania, Zimbabwe, Siberia, Central Africa Republic. It currently operates through its offices located in Nagpur, Pune, and Mumbai spread across total area of 1064.42 sq. mtrs. accommodating a workforce of over 250+ employees. The Nagpur property is currently over utilized and lacks the capacity to accommodate additional personnel. The SaaS platform allows customer to bear minimal Capex cost and economical Opex cost and assures high uptime of core banking application. As on date, it has the total strength of 228 employees on payroll basis and 35 employees on contract basis in Nagpur office.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6282000 equity shares of Rs. 10 each to mobilize Rs. 63.45 cr. at the upper cap. It has announced a price band of Rs. 95 - Rs. 101 per share. The issue opens for subscription on March 26, 2024, and will close on March 28, 2024. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 26.37% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 15.19 cr. for additional development facility, instalment of fit outs and interior design work at Nagpur, Rs. 3.00 cr. for procurement of hardware and upgrading IT infra, Rs. 15.00 cr. for enhancing and upgrading existing products, Rs. 9.03 cr. for global and domestic business development, and the rest for general corporate purposes. 

The issue is solely lead managed by Corporate Capitalventures Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar of the issue, and SS Corporate Securities Ltd. is the market maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 40.00 - Rs.72.43 between October 2016 and January 2024. It has also issued bonus shares in the ratio of 2 for 1 in March 2012, 1.9 for 1 in March 2016, 1.82 for 10 in October 2016, and 2.2 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. 0.31, Rs. 0.42, and Rs. 18.57 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 17.54 cr. will stand enhanced to Rs. 23.83 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 240.64 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 24.18 cr. / Rs. 2.20 cr. (FY21), Rs. 18.00 cr. / Rs. 1.34 cr. (FY22), and Rs. 22.70 cr. / Rs. 4.02 cr. (FY23). For H1 of FY24 ended on September 30, 2023, it earned a net profit of Rs. 7.28 cr. on a total income of Rs. 18.83 cr. Thus the sudden boost in its bottom lines raise eyebrows and sustainability of such margins going forward. It marked inconsistency in its top and bottom lines between FY21 and FY23. 

For the last three fiscals, it has reported an average EPS of Rs. 5.44, and an average RONW of 16.06%. The issue is priced at a P/BV of 1.98 based on its NAV of Rs. 51.04 as of September 30, 2023, and at a P/BV of 2.52 based on its post-IPO NAV of Rs. 40.02 per share (at the upper cap).

If we attribute annualized FY24 earnings to its post-IPO fully diluted paid-p capital, then the asking price is at a P/E of 16.53. Based on FY23 earnings, the P/E stands at 59.76. Thus the issue is fully priced. 

For the reported periods, the company has posted PAT margins of 9.08% (FY21), 7.43% (FY22), 17.72% (FY23), 38.66% (H1-FY24), and RoCE margins of 22.26%, 11.03%, 20.07%, 28.54% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not declared any dividends for any financial year so far. 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 Network People and Veefin Solutions as their listed peers. They are trading at a P/E of 107 and 155 (as of March 21, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 13th mandate from Corporate Capitalventures in the last three fiscals, out of the last 11 listings, 1 opened at discount and the rest with premiums ranging from 17.65% to 245.23% on the day of listing.

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