Unicommerce eSolutions IPO review (May apply)

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Review By Dilip Davda on August 2, 2024

•    The company claims to be India's largest eCommerce enablement SaaS platform offering all such related services and solutions.
•    It is the only profit making company with global presence, it the segment.
•    Based on FY24 super earnings, the issue appears aggressively priced.  
•    It may witness first mover fancy post listing. 
•    Well-informed investors may park funds for long term.

ABOUT COMPANY:
Unicommerce eSolutions Ltd. (UEL) is India's largest eCommerce enablement SaaS platform in the transaction processing or nerve centre layer, in terms of revenue for Fiscal 2023, 2022 and 2021. It is the only profitable company among the top 5 players in this industry in India during Fiscal 2023. The rule of 40 is an industry accepted thumb rule which is used to assess the growth and profitability of SaaS companies. It says that the sum of the revenue growth over a year and profitability (EBITDA as a percentage of revenue) must be at least 40%. This indicates the ability of the SaaS company to grow efficiently. Unicommerce satisfies the rule of 40 and it has the highest PAT margin amongst its competitors in Fiscal 2023.

UEL's ability to create efficiency gains for clients through its suite of products has led to financial growth for the company. Plug and play integrations with key technologies and partners is a key strength of it and together with its ability to streamline e-commerce operations enables it to become an integral part of its client's tech stack. The company has several key integrations with relevant marketplaces, 3PL partners and popular ERPs. These also allow it to serve various type of clients across the retail landscape. The above capabilities allow the company to be an essential consideration for D2C Brands, Brand Aggregators, Traditionally Offline Brands, Retailers, Marketplaces, Logistic Players, and SMBs when evaluating market solutions. Its ability to act as an integrated technology stack, enable end-to-end e-commerce operations and act as a nerve centre for management of all e-commerce data including sales, inventory, returns, procurement management, invoice management and logistics management, makes it a leading player in the market. 

Due to such market position, UEL has one of the largest bases of enterprise customers in India among its competitors and powers a diversified, marquee clientele. It processes large numbers of orders across retailers and brands with 20-25% of all existing set of clients.

While this industry is still nascent, there are several growth drivers propelling the industry forward. However, as the industry matures and as businesses invest in R&D to enhance their platforms, it can anticipate that market players will experience increased profitability due to higher operating leverage. This means that players can generate increasing revenue and grow their scale with relatively lower increase in their operating and R&D costs.

UEL has been able to create a large, growing base of marquee clients across the retail and e-commerce landscape in India as well as consistently onboard new clients in international geographies. Its clients, inter alia, include D2C brands, brand aggregator firms, traditionally offline brands, e-commerce retailers, marketplaces, third-party logistics and fulfilment players and SMBs. Its clients belong to various sectors including fashion (apparel, footwear, accessories), electronics, home and kitchen, FMCG, beauty and personal care, sports and fitness, nutrition, health and pharma as well as third-party logistics and warehousing.  As of March 31, 2024, it had 312 full-time employees on payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden secondary IPO of Offer for Sale (OFS) of 25608512 equity share of Re. 1 each to mobilize Rs. 276.57 cr. at the upper cap. The company has announced a price band of Rs. 102 - Rs. 108 per equity shares of Rs. 1 each. The issue opens for subscription on August 06, 2024, and will close on August 08, 2024. The minimum application to be made is for 138 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 25% of the post-IPO paid-up equity capital. The Company will not receive any proceeds from the Offer (the "Offer Proceeds") and all the Offer Proceeds will be received by the Selling Shareholders, in proportion to the Offered Shares sold by the respective Selling Shareholders as part of the Offer.

The joint Book Running Lead Managers (BRLMs) to this issue are IIFL Securities Ltd., and CLSA India Pvt. Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue. 

Having issued initial equity shares at par, the company issued further equity shares in the price range of Rs. 100 - Rs. 6728.25 per share (based on Re. 1 FV), between March 2012, and April 2015. It has also issued bonus shares in the ratio of 255 for 1 in November2023. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 23.52, and Rs. 30.87 per share. 

Post-IPO, its current paid-up equity capital of Rs. 10.24 cr. will remain same as this is a pure OFS. Based on the upper cap of the IPO price band, the company is looking for a market cap of Rs. 1106.29 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 61.36 cr. / Rs. 6.01 cr. (FY22), Rs. 92.97 cr. / Rs. 6.48 cr. (FY23), and Rs. 109.43 cr. / Rs. 13.08 cr. (FY24). As claimed by the management, it is the only profit making company in the space and has good track record.

For the last three fiscals, the company has posted an average EPS of Rs. 0.96 (basic) and an average RoNW of 16.07%. The issue is priced at a P/BV of 15.81 based on its NAV of Rs. 6.83 as of March 31, 2024 as well as post-IPO as this is a pure secondary offer. 

If we attribute FY24 annualized earnings to its post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 84.38. Based on FY23 earnings, the P/E stands at 171.43. Thus the issue appears aggressively priced. 

The company reported PAT margins of 10.18% (FY22), 7.19% (FY23), 12.63% (FY24), while RoCE margins data is missing from the offer document.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in December 2023, based on its financial performance and future prospects.

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
The two BRLMs associated with the offer have handled 33 pubic issues in the past three fiscals, out of which 9 issues closed below the offer price on the listing date. 

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