S A Tech NSE SME IPO review (May apply)

Review By Dilip Davda on July 24, 2024

•    It is an AI-driven IT consulting company having association with US based company.
•    Based on its financial performance till FY23, it fared averagely.
•    Based on FY25 super annualized earnings, the issue appears lucratively priced.
•    Well-informed investors may park moderate funds for the medium to long term. 

ABOUT COMPANY:
S A Tech Software India Ltd. (STSIL) is centered in Pune and Bengaluru, is an IT consulting Subsidiary Company of foreign body corporate SA Technologies Inc, USA.

It is an AI-driven IT consulting company, offering scalable IT outsourcing solutions and Global Development Centers (GDCs) that enhance business agility and efficiency. Its services range from individual support to largescale enterprise transformations, providing the flexibility to scale from 1 to 1000 professionals as needed. Its GDCs drive innovation and R&D, deliver cost-efficient solutions, ensure stringent quality assurance, and provide 24/7 operations.

It is a CMMI (Capability Maturity Model Integration) certified company. It is a significant milestone for the company, reflecting its commitment to excellence and continuous improvement. Capability Maturity Model Integration for Services (CMMI Services) Maturity Level 5 certification underscores the pinnacle of process improvement and service excellence in the IT sector, solidifying its global presence. As of June 30, 2024, it had 385 employees on its payroll.

The Company has experience of catering to global as well as domestic customers since more than a decade. It has entered into a Service Partnership with holding Company to cater to the needs of foreign clients. It services to a diverse portfolio of clients ranging from small to Enterprise ones, offering products and digital solutions. With the benefit of global presence, the company brings together diverse teams from different parts of the world with multiple skills to collaborate in real time and solve complex technological problems for clients. It has a diversified global presence across USA and Canada because of its Parent and Group Companies. The company has had long lasting relationships with some of its clients who have shown deeper trust in its services. Due to the long- standing relationships with some of enterprise clients, it has been able to garner the trust of other clients and has provided a balanced mix of stability and growth with revenue stability and further growth opportunities in a world that is becoming increasingly complex, with shortening product innovation timelines and rapid technological change. It leverages deep Information Technology knowledge to deliver value-added services to clients in support of their digital transformation initiatives including Application development, mobile apps development, Cloud infrastructure, Software Quality assurance, generative AI, machine learning, IoT solutions, data science and analytics.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 3900000 equity shares of Rs. 10 each to mobilize Rs. 23.01 cr. at the upper cap. It has announced a price band of Rs. 56 – Rs. 59 per share. The issue opens for subscription on July 26, 2024, and will close on July 30, 2024. The minimum application to be made is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on NSE SME Emerge. The issue constitutes 29.86% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, it will utilize Rs. 9.18 cr. for repayment/prepayment of certain borrowings, Rs. 10.80 cr. for working capital, and the rest for general corporate purposes.

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 90.00 – Rs.  of Rs. 400.00 per shared between August 2013, and October 2023. It 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. 0.00, Rs. 0.48, Rs. 7.22. Rs 10.95, and Rs. 19.04 per share.

The issue is solely lead managed by GYR Capital Advisors Pvt. Ltd., and Bigshare Services Pvt. Ltd. is the registrar to the issue. Giriraj Stock Broking Pvt. Ltd., is the market maker for the company.

Post-IPO, company’s current paid-up equity capital of Rs. 9.16 cr. (9157281 shares) will stand enhanced to Rs. 13.06 cr. (13057281 shares). Based on the upper IPO price band, the company is looking for a market cap of Rs. 77.04 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has posted a total income/net profit/ – (loss) of Rs. 41.54 cr. / Rs. – (5.48) cr. (FY22), Rs. 56.73 cr. / Rs. 1.09 cr. (FY23), and Rs. 72.38 cr. / Rs. 3.69 cr. (FY24). For Q1 of FY25 ended on June 30, 2024, it earned a net profit of Rs. 2.48 cr. on a total income of 23.97 cr. The company posted inconsistency in its performance for the reported periods.

For the last three fiscals, it has reported an average EPS of Rs. 1.42, and an average RoNW of 6.73%. The issue is priced at a P/BV of 3.82 based on its NAV of Rs. 15.45 as of June 30, 2024, and at a P/BV of 2.07 based on its post-IPO NAV of Rs. 28.45 per share (at the upper cap).

For the reported periods, the company has posted PAT margins of – (13.35) % (FY22), 1.93% (FY23), 5.13% (FY24), and 10.38% (Q1-FY25) and RoCE margins of – (17.35) %, 19.66%, 32.24%, 10.95%, respectively for the referred periods.

If we attribute FY25 annualized super earnings to its post-IPO fully diluted paid-up capital, then the asking price is at a P/E of 7.63, and based on FY23 earnings, the P/E stands at 20.92.

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 ASM Tech, Moschip Tech, Info beans Techno, Onward Techno and 3i Infotech, as their listed peers. They are trading at a P/E of NA, 503.0, 40.1, 34.9 and NA (as of July 24, 2024). However, they are not comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
This is the 28th mandate from GYR Capital in the last four fiscals (including the ongoing one), out of the last 10 listings, all listed with premiums ranging from 36.36% to 366.67% on the date of listing.