Veritaas Advertising NSE SME IPO review (May apply)

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Review By Dilip Davda on May 9, 2024

•    VAL is an integrated advertising agency offering 360-degree services across multiple platforms.
•    After average performances for FY21 and FY22, it marked quantum jump in top and bottom lines from FY23 onwards.
•    Based on FY24 annualized super earnings, the issue appears aggressively priced.
•    It is operating in a highly competitive and fragmented segment.
•    Investors may park moderate funds for the medium term. 

ABOUT COMPANY:
Veritaas Advertising Ltd. (VAL) is an integrated advertising agency offering 360-degree services across multiple platforms. It owns advertisement spaces in West Bengal, Guwahati and Shillong, thereby making VAL one of the few media owning marketing and advertisement agencies. It also operates in Delhi, Mumbai and Pune. VAL operates/advertises in police booths and outdoor hoardings, which reduces its dependence on third parties and enables it in offering integrated services.

The Company's advertising services enables its clients to monetize their marketing collaterals and generate revenues and acts as a differentiator compared to other players in respective markets. With content at its heart, the Company builds creative stories around brands to enhance their ROI. Working across various offline platforms, Company's expertise includes strategizing, building compelling conversations to increase a brand's influence and reach the desired target audience. It has created and managed successful marketing campaigns for various brands and worked with large budgets to drive the best reach and engagement for clients. 

It provides high-end ecosystem and end-to-end advertising solutions platform for advertising media services consisting of Brand Strategy, Events, Outdoor (OOH) Media services which covers advertisement modes such as police booth hoardings, Newspapers insertions, Brochures, and display of Outdoor Hoardings, etc. In all such mediums of advertising "Creative" exists i.e. all the services are given keeping in mind the necessity of being creative, so it can deliver most compelling ideations, creations and communications to grab attentions of the public at large. It is dependent on third parties for space, such as pole kiosks, newspapers insertion, third party outdoor hoardings, etc. for catering the needs of clients. 

While it has long term relationships with the such parties, VAL typically do not enter into long term agreements with such intermediaries. It believes that police booth advertisements draw significant attention of the target audience, on account of wide spread presence in diverse areas of a city. Owing to the efficacy of this advertisement segment, it has in the past significantly invested in advertisements through police booths at cities /towns of West Bengal, Guwahati and Shillong, thereby making it one of its main business verticals. VAL fabricates the police booths at own cost and install the same at the traffic signals and it has exclusive right to use the booths for advertisement business. The cost of the booths are recognised in its books as intangible assets. The company also ensure maintenance of the booths at own expense. The right over the booths are available for a period of 3 years initially which is renewed at the interval of every three years. 

As of date of this Red Herring Prospectus, there have not been any instances in the past, wherein it has been denied renewal of right to use the booths. In order to supplement this segment of the Company, it is proposing to utilize a portion of the Net Proceeds towards fabrication of police booths which are proposed to be installed in West Bengal, Assam, Maharashtra and Delhi. As on January 31, 2024, the Company has 71 employees on payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 744000 equity shares of Rs. 10 each to mobilize Rs. 8.48 cr. at the upper cap. It has announced a price band of Rs. 109 - Rs. 114 per share. The issue opens for subscription on May 13, 2024, and will close on May 15, 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 26.35% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 5.27 cr. for funding new police booth purchased in West Bengal, Assam, Maharashtra and Delhi., Rs. 0.60 cr. for capex in Pole Kiosk for setting up of traffic signal point display in Kolkata, Mumbai and Pune, and the rest for general corporate purposes. 

The issue is solely lead managed by Horizon Management Pvt. Ltd., and Mas Services Ltd. is the registrar of the issue. HORIZON GROUP's Horizon Financial Consultants Pvt. Ltd. is the market maker for the company. 

Having issued initial equity capital at par the company issued further equity shares at a fixed price of Rs. 1200 per share in November 2023, and has also issued bonus shares in the ratio of 20 for 1 in December 2023. The average cost of acquisition of shares by the promoters is Rs. NA, Rs. 0.94, and Rs. 1.81 per share. 

Post-IPO, company's current paid-up equity capital of Rs. 2.08 cr. (2079000 shares) will stand enhanced to Rs. 2.82 cr. (2823000 shares). Based on the upper IPO price band, the company is looking for a market cap of Rs. 32.18 cr.  

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total revenue/net profit of Rs. 2.34 cr. / Rs. 0.20 cr. (FY21), Rs. 3.39 cr. / Rs. 0.13 cr. (FY22), and Rs. 7.87 cr. / Rs. 0.44 cr. (FY23). For FY24, for the period ended on February 10, 2024, it earned a net profit of Rs. 1.57 cr. on a total revenue of Rs. 9.04 cr. 

For the last three fiscals, it has reported an average EPS of Rs. 1.52, and an average RoNW of 46.75%. The issue is priced at a P/BV of 6.69 based on its NAV of Rs. 17.05 as of February 10, 2024, and at a P/BV of 2.68 based on its post-IPO NAV of Rs. 42.60 per share (at the upper cap).

If we attribute annualized FY24 super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 17.73. Based on FY23 earnings, the P/E stands at 73.08. Thus the issue appears aggressively priced.

For the reported periods, the company has posted PAT margins of 8.56% (FY21), 3.73% (FY22), 5.66% (FY23), 17.36% (310D-FY24), and RoCE margins of 104.88%, 15.87%, 36.06%, 39.65% 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 Crayons Advertising and Maagh Advertising as their listed peers. They are trading at a P/E of 22.4 and 219 (as of May 08, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER'S TRACK RECORD:
This is the 5th mandate from Horizon Management in the last two fiscals (including the ongoing one), out of the last 4 listings, 2 opened at discount, 1 at par and the 1 at premium of 14.54%. 

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