UDS IPO review (May apply)

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Review By Dilip Davda on September 21, 2023

•    UDS is a leading company in the IFM and BSS segment having integrated business services.
•    It has consistently posted growth in its top lines for the reported periods.
•    Due to one-time adjustments for its recent acquisitions, it marked a setback in its bottom lines for FY23.
•    It is on a spree to add new technology-driven high-margin services to improve its performance. 
•    Well-informed investors may consider parking funds for medium to long-term rewards.

ABOUT COMPANY:
Updater Services Ltd. (UDS) is a leading, focused, and integrated business services platform in India offering integrated facilities management ("IFM") services and business support services ("BSS") to customers, with a Pan-India presence. It is the second largest player in the IFM market in India and has the widest service offering in the industry, making it a unique and differentiated player in the market. (Source: F&S Report).

In addition to growing organically, the company has also undertaken the acquisition of various businesses over the years where its strategy has been to acquire and integrate businesses that are complementary, thereby enabling the creation of a larger business services platform. These acquisitions have been undertaken with a view to not only diversify and broaden the service mix but also to enable it to move up the value chain in terms of more value-added services connected to the customers' revenue and growth objectives versus only cost and efficiency objectives. All its acquisitions have added either a new customer segment, a new service line, or a new geography to it.

Within the BSS segment, UDS offers Audit and Assurance services through its Subsidiary, Matrix and according to the F&S Report, Matrix is a leading Audit and Assurance company for dealer/distributor audits, and retail audits, and its strong branch reach and field associate reach has driven the company to reach the top spot in India, with a market share of 19.2% in the Financial Year ended March 31, 2023. It also offers employee background verification check services through Matrix and in this segment, Matrix is the third largest company in India with a share of 5.4% in the Financial Year ended March 31, 2023. In addition, the company provides sales enablement services through Subsidiaries Denave and Athena, and as per the F&S Report, Denave is the largest player in this segment with a market share of 20.1% in India in the Financial Year ended March 31, 2023. 

In addition, UDS offers mailroom management services through Subsidiary, Avon which is a market leader in India with a share of 11.1% in the mailroom management services market in the Financial Year ended March 31, 2023. It operates in the Business-to-Business ("B2B") services space offering a spectrum of business services. 
 
As of March 31, 2023, it had 1427 customers under the IFM segment and 1669 customers under the BSS segment. Over the years, UDS has grown to become a Pan India player, with a widespread network consisting of 4,331 locations (excluding staffing locations) managed from 129 points of presence with 116 offices situated in India and 13 offices situated overseas, as of June 30, 2023. As of June 30, 2023, UDS employed 65,627 employees across its operations.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a combo book building route maiden IPO of fresh equity shares issue worth Rs. 400 cr. (approx. 13333350 shares at the upper cap), and an Offer for Sale (OFS) of 8000000 equity shares of Rs. 10 each (worth Rs. 240.00 cr. at the upper cap). Thus the overall size of the issue is 21333350 shares worth Rs. 640.00 cr. The company has announced a price band of Rs. 280.00 - Rs. 300.00 per share. The issue opens for subscription on September 25, 2023, and will close on September 27, 2023. The minimum application to be made is for 50 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE. The issue constitutes 31.98% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize Rs. 133.00 cr. for repayment/prepayment of certain borrowings, Rs. 115.00 cr. for working capital, Rs. 80.00 cr. for inorganic initiatives, and the rest for general corporate purposes. 

The company has allocated not less than 75% for QIBs, not more than 15% for HNIs, and not more than 10% for Retail investors. 

IIFL Securities Ltd., Motilal Oswal Investment Advisors Ltd., and SBI Capital Markets Ltd. are the three joint Book Running Lead Managers (BRLMs), and Link Intime India Pvt. Ltd. is the registrar of the issue. 

Having issued/converted initial equity shares at par value, it issued further equity shares in the price range of Rs. 110.76 - Rs. 8190 per share between January 2006 and August 2023. It has also issued bonus shares in the ratio of 82 for 1 in March 2011, and 45 for 10 in March 2017. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. 0.02, Rs. 1.01, Rs. 46.92, and Rs. 110.76 per share. 

Post-IPO, UDS's current paid-up equity capital of Rs. 53.37 cr. will stand enhanced to Rs. 66.70 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. 2001.08 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, UDS has posted a total income/net profit of Rs. 1216.35 cr. / Rs. 47.56 cr. (FY21), Rs. 1497.89 cr. / Rs. 57.37 cr. (FY22), and Rs. 2112.09 cr. / Rs. 34.61 cr. (FY23). The lower profit for FY23 is attributed to its recent acquisitions that mandated some one-time adjustments. 

According to the management, though the company faced an average of 73.73% for the last three fiscals, it has managed to pull the fresh numbers to maintain its tally and thus had a minimal impact on its working. 

For the last three years, the company has reported an average EPS of Rs. 8.23 and an average RoNW of 12.75%. The issue is priced at a P/BV of 4.17 based on its NAV of Rs. 71.93 as of March 31, 2023, and at a P/BV of 2.56 based on its post-IPO NAV of Rs. 117.07 per share (at the upper cap). 

If we attribute its adjusted earnings for FY23 to the post-IPO fully diluted paid-up capital of the company, then the asking price is at a P/E of 57.80, and on the basis of FY22, it stands at 34.88. Thus the issue appears aggressively priced. The management is confident of its being back on track as it has a good relationship with customers with long-term contracts. The company has recently entered into high-margin specialized services that will help it to scale up its performance. It is on a spree to expand its global footprint.

UDS has posted PAT margins of 3.92% (FY21), 3.85% (FY22), and 1.64% (FY23) and its ROE margins for the corresponding periods were 15.79%, 16.24%, and 9.40% respectively. 

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

COMPARISON WITH LISTED PEERS:
As per the offer document, UDS has shown Quess Corp, SIS Ltd., and TeamLease as their listed peers. They are trading at a P/E of 53.92, 30.11, and 41.87 (as of September 21, 2023). However, they are not comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
The three BRLMs associated with the offer have handled 60 public issues in the past three fiscals (including the ongoing one). Out of which 23 issues closed below the IPO price on the listing date. 

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