Vertexplus Techno NSE SME IPO review (May apply)

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Review By Dilip Davda on February 28, 2023

•    VTL is engaged in providing IT solutions services.
•    For the last three fiscals, its top line remained almost static. 
•    It posted marginal growth in its bottom lines. 
•    Based on the current financial data, the issue is priced aggressively. 
•    Well-informed/cash surplus investors may consider parking funds for the long term. 

ABOUT COMPANY:
Vertexplus Technologies Ltd. (VTL) is an ISO 9001:2015 and ISO/IEC 27001:2013 certified Information Technology company engaged in consulting, outsourcing, infrastructure and digital solutions and services. It collaborates with companies to fulfil their ever-evolving Information Technology needs and support their business with its enabling solutions to strengthen their current capabilities and build pathways for sustainable growth. 

The company has experience across various industry sectors. The Company operates from its Registered Office situated at B-19, Ground Floor, 10-B Scheme, Gopalpura Road Jaipur -302018, India and development facilities at Jaipur and Noida. Vertexplus endeavours to bring together creativity and knowledge with a positive business strategy to furnish the requirements of diverse customers with an inclusive range of products and services which are comprehensive and cost-effective so that the client can focus on their core competencies to improve or expand their businesses. Vertexplus has worked for numerous industries, realized its true potential and scaled to global recognition. As of September 30, 2022, it had 313 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 1479600 equity shares of Rs. 10 each via the book-building route and has fixed a price band of Rs. 91 - Rs. 96 per share. At the upper cap, the company mulls mobilizing Rs. 14.20 cr. The issue opens for subscription on March 02, 2023, and will close on March 06, 2023. 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 xx% of the post-issue paid-up capital of the company. 

The company has allocated note more than 50% for QIBs, not less than 15% for HNIs and not less than 35% for Retail investors. From the net proceeds of the IPO fund, it will utilize Rs. 10.00 cr. for working capital and the balance for general corporate purposes. 

Beeline Capital Advisors Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Prabhat Financial Services Ltd. is the market maker for the company. 

After issuing initial equity shares at par, the company issued bonus shares in the ratio of 399 for 1 in March 2022. The average cost of acquisition of shares by the promoters is Rs. 0.00 and Rs. 0.03 per share. 

Post-IPO, VTL's current paid-up equity capital of Rs. 4.00 cr. will stand enhanced to Rs. 5.48 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 52.60 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, VTL has (on a consolidated basis) posted a turnover/net profit of Rs. 19.64 cr. / Rs. 0.55 cr. (FY20), Rs. 20.26 cr. / Rs. 1.03 cr. (FY21), and Rs.21.32 cr. / Rs. 1.87 cr. (FY22). For the H1 of FY23 ended on September 30, 2022, it earned a net profit of Rs. 0.91 cr. on a turnover of Rs. 10.92 cr. 

For the last three fiscals, VTL has reported an average EPS of Rs. 3.45 and an average RoNW of 23.69%. The issue is priced at a P/BV of 4.75 based on its NAV of Rs. 20.19 as of September 30, 2022, and at a P/BV of 2.36 based on its post-IPO NAV of Rs. 40.66 (at the upper cap). 

If we annualize FY23 earnings and attribute it to post-IPO fully diluted paid-up equity capital, the asking price is at a P/E of around 28.83. Thus the issue is aggressively priced. 

DIVIDEND POLICY:
The company has not declared any dividends in the last five years. It will adopt a prudent dividend policy post-listing, based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown Ksolves and Sigma Solves as their listed peers. They are currently trading at a P/E of 22.81 and 185.44 (as of February 28, 2023). However, they are not truly comparable on an apple-to-apple basis.  

MERCHANT BANKER'S TRACK RECORD:
The merchant banker associated with this issue has handled 8 issues in the last three fiscals, out of which 1 issue closed below the issue price on the listing date.

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