Zeal Global NSE SME IPO review (May apply)

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Review By Dilip Davda on July 25, 2023

•    The company is in the business of providing logistics solutions to the Air Cargo industry. 
•    After an average performance for FY20 and FY21, it posted boosted top and bottom lines.
•    The last 22 months' performance appears to have been window dressing for fancy pricing.
•    Well-informed cash surplus investors may park funds for the long term, others may avoid.

ABOUT COMPANY:
Zeal Global Services Ltd. (ZGSL) is engaged in the business of providing logistics solutions in the Air Cargo Industry. It has been operating as a General Sales and Service Agent ("GSSA") and sales partner for airlines in the region. The company realizes that clients have specific requirements with regard to their shipments. Therefore, it spends considerable time with clients individually to understand their specific requirements. 

Its approach is to bring economical solutions to clients' freighting needs through - excessive aircraft, load and destination compatibility analysis to suit ever changing needs of various industries such as fashion, pharmaceuticals, automotive and industrials.

ZGSL is headquartered in Delhi and has a presence in major locations such as Delhi and Mumbai. Its international logistics operations are supported by a network of service partners and vendors with whom it enters into agreements that enable the company to service client requirements across India and abroad. As of the date of filing this offer document, it had 37 employees on its payroll. 

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden IPO of 3540000 equity shares of Rs. 10 each at a fixed price of Rs. 103 per share to mobilize Rs. 36.46 cr. The issue opens for subscription on July 28, 2023, and will close on August 01, 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 26.60% of the post-IPO paid-up capital of the company. ZGSL is spending Rs. 3.02 cr. for this IPO process, and from the net proceeds, it will utilize Rs. 12.00 cr. for working capital, Rs. 10.00 cr. for investments in subsidiaries, Rs. 4.32 cr. for part repayment of the debt, and Rs. 7.12 cr. for general corporate purposes. 

Expert Global Consultants Pvt. Ltd. is the sole lead manager and Skyline Financial Services Pvt. Ltd. is the registrar of the issue. Rikhav Securities Ltd. is the market maker for the company. 

ZGSL has issued/converted the entire equity capital at a par value so far. It has also issued bonus shares in the ratio of 3 for 2 in March 2022 and in the ratio of 4 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.03 and Rs. 0.32 per share. 

Post-IPO, ZGSL's current paid-up equity capital of Rs. 9.77 cr. will stand enhanced to Rs. 13.31 cr. Based on the IPO pricing, the company is looking for a market cap of Rs. 137.09 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, ZGSL has posted a turnover/net profit of Rs. 76.71 cr. / Rs. 1.34 cr. (FY20), Rs. 60.95 cr. / Rs. 1.70 cr. (FY21), and Rs. 121.28 cr. / Rs. 5.24 cr. (FY22). For 10M of FY23 ended on January 31, 2023, it earned a net profit of Rs. 8.27 cr. on a turnover of Rs. 95.05 cr. The last 22 months of working appear to have been window-dressed to pave the way for fancy pricing of the IPO. 

For the last three fiscals, the company has reported an average EPS of Rs. 4.54 and an average RoNW of 43.52%. The issue is priced at a P/BV of 4.76 based on its NAV of Rs. 21.65 as of January 31, 2023, and at a P/BV of 1.55 based on its post-IPO NAV of Rs. 66.53 per share. 

If we annualize 10M FY23 performance and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 13.83 and based on FY22 earnings the P/E stands at 26.14. Thus the issue appears fully priced discounting all near-term positives. 

DIVIDEND POLICY:
The company has paid a dividend of 110% for FY20 and 35% for FY21, thereafter it skipped. 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 not shown any listed peers to compare with. Surprisingly, it has provided private unlisted peer groups to compare with. Perhaps this is the first time we are witnessing such a diversion in this chapter. Is providing such information permitted???

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Expert Global in the last two fiscals (including the ongoing one). Out of the last 3 listings, 1 opened at a discount and the rest listed at premiums ranging from 10.47% to 26.67% on the listing date.

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