Vdeal Systems NSE SME IPO review (Apply)

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Review By Dilip Davda on August 24, 2024

•    The company is a growing integrated electrical and automation solution provider.
•    Across the industry, comprehensive electrical solutions are widely used.
•    Last three fiscals' financial performance indicates likely trends going forward.
•    The company has technical tie-ups with global leaders in the field, that gives it an edge over other players.
•    Investors may park funds for the long term rewards.

ABOUT COMPANY:
Vdeal System Ltd. (VSL) is an ISO 9001:2015 certified, providing solutions in Smart Low Voltage (LV) panels, Smart Medium Voltage (MV) panels, Smart Variable Frequency Drive (VFD) panels, Medium Voltage (MV) Soft Starter, Energy Management System (EMS) and Smart Programmable Logic Controller (PLC) panels, Air insulated & Sandwich busducts backed by In-house Product design & development, manufacturing, system integration, servicing of automation solutions and smart electrical control panels that adhere to high international IEC standards of quality and safety. 

The Company has business relationships with global electrical players. Such strategic tie ups with renowned brand owners give it the competitive edge over competitors. VSL is a growing Integrated Electrical and Automation solution provider dealing in comprehensive electrical solutions across industries with significant presence in multiple Industry segments. Its products are supplied to industry players through a business-to-business (B2B) model.

VSL is also fueling the next wave of AI (Artificial Intelligence) and ML (Machine Learning)-driven innovation solution that can integrate IOT (Internet of things), AI and ML into a Cloud based Software as a Service (SaaS) Model. Over the past few years, IoT has become one of the most important technologies of the 21st century through which everyday objects like kitchen appliances, cars, thermostats, baby monitors can be connected to the internet via embedded devices. Hence, by providing IoT solutions, the Company aims to integrate seamless communication between people, processes, and things.

Before the invention of Electrical Control Panels, control and monitoring systems of power and electricity relied on Mechanical, Analog, and manual methods. However, with the rise of industrialization, there was a growing demand for control systems to automate manufacturing processes and machinery. Smart Electrical Control Panels emerged as a solution for centralized control and monitoring of industrial equipment with automation, providing a means to regulate complex operations efficiently. As of August 20, 2024, it had 65 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden IPO of 1614000 equity shares of Rs. 10 each at a fixed price of Rs. 112 per share to mobilize Rs. 18.08 cr. The issue opens for subscription on August 27, 2024, and will close on August 29, 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 33% of the post-IPO paid-up capital of the company. The company is spending Rs. 2.71 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 7.03 cr. for working capital, Rs. 4.64 cr. for repayment/prepayment of certain loans, and Rs. 3.70 cr. for general corporate purposes. 

The issue is solely lead managed by Affinity Global Capital Market Pvt. Ltd., and Cameo Corporate Services Ltd. is the registrar to the issue. Black Fox Financial Pvt. Ltd. is the market maker for the company. The issue is underwritten to the tune of 50% by Affinity Global and the balance 50% by Black Fox Financial. 

Having issued initial equity shares at par value, the company issued further equity shares at a price of Rs. 44.50 (on the basis of Rs. 10 FV) in April 2017. The company also issued bonus shares in the ratio of 10 for 1 in December 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, and Rs. 2.64 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 3.28 cr. will stand enhanced to Rs. 4.89 cr. Based on the upper IPO price band, the company is looking for a market cap of Rs. 54.77 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit of Rs. 16.24 cr. / Rs. 0.23 cr. (FY22), Rs. 20.75 cr. / Rs. 1.10 cr. (FY23), Rs. 26.25 cr. / Rs. 3.11 cr. (FY24). 

For the last three fiscals, it has reported an average EPS of Rs. 5.99, and an average RoNW of 37.16%. The issue is priced at a P/BV of 5.84 based on its NAV of Rs. 19.19 as of March 31, 2024, and at a P/BV of 2.25 based on its post-IPO NAV of Rs. 49.82 per share. 

If we attribute FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.58, and on the FY23 earnings, it stands at 49.78. Prima facie the issue appears fully priced.

For the reported periods, the company has posted PAT margins of 1.43% (FY22), 5.31% (FY23), 11.87% (FY24), and RoCE margins of 11.18%, 23.14%, 32.83% respectively for the referred periods. 

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. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Akanksha Power, and Saakshi Medtech as their listed peers. They are trading at a P/E of 83.2 and 38.2 (as of August 23, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Affinity Global in the last two fiscals (including the ongoing one), out of the last 3 listings, 1 opened at par and the rest all listed with premiums ranging from 18.18% to 30.43% on the date of listing. 

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