SAR Televenture FPO review (May apply)

Review By Dilip Davda on July 13, 2024

•    The company is coming out with its composite issue of RI + FPO to mobilize Rs. 450 cr. 
•    The FPO time line is July 22, 2024 to July 24, 2024.
•    The company came with its maiden IPO for Rs. 24.75 cr. in November 2023 at a price of Rs. 55 per share of Rs. 2.
•    Based on FY24 earnings, the issue appears aggressively priced.
•    Company’s customer list includes Airtel, Vodafone, Jio, BSNL etc.
•    Well-informed investors may park moderate funds for the medium to long term.

PREFACE:
Perhaps this is happening for the first time that a company has received permission from regulators for its composite issue that includes FPO (Further Public Offer) of Rs. 150 cr. and a Rights Issue (RI) amounting to Rs. 300 cr. making an overall size of the issue worth Rs. 450 cr. While FPO of Rs. 150 cr. (approx. 7143000 shares at the upper cap or 7500000 shares at the lower cap) is scheduled between July 22, 2024 and July 24, 2024 and has a price band of Rs. 200 – Rs.  210 per share of Rs. 2 each and a RI of Rs.300 cr. with a fixed price of Rs. 200 per share of Rs. 2 each. For FPO, the minimum lot of application will be 500 shares and in multiples thereon, thereafter. And RI is issued in the ratio of 1 share for every 1 share held as of the record date of July 09, 2024. Time line for RI is from July 15, 2024 to July 22, 2024. Thus the FPO opens on the closure day of RI. For both this issues, the market lot is kept at 500 shares and in multiples thereon, thereafter. 

The company came with its maiden IPO of Rs. 24.75 cr. at a price of Rs. 52 – Rs. 55 per share of Rs. 2 each in the month of November 2023. For the IPO, the market maker was R K Stock Holding Pvt. Ltd., while for this composite issue, the market maker is Asit C Mehta Investment Intermediates Ltd.

ABOUT COMPANY:
SAR Televenture Ltd. (STL) is engaged in telecommunication solutions related services. As of May 31, 2024, it had 413 towers installation in operation. Its tower installation posted inconsistency with 108 towers installations in FY22, 140 installations in FY23 and only 40 installations in FY24.

On January 03, 2023, the Company has entered into share purchase agreement to acquire 100% of the issued and paid-up equity share capital of SAR Televentures F.Z.E, United Arab Emirates (formerly known as Shoora International -F.Z.E) from Shoora Capital Limited. Its subsidiary is currently engaged in the business of laying and installation of fiber cables and trading of network equipment. As part of its strategy, STL intends to enter the business vertical of installing Fiber to the Home (FTTH), which is a broadband internet connection technology that uses optical fiber to deliver high speed broadband internet directly to households.

In the opinion of the management of the Company, since the date of the last financial statements disclosed in this Offer Document, there have not arisen any circumstance that materially or adversely affect or are likely to affect the business activities or profitability of the Company or the value of its assets or its ability to pay its material liabilities within the next twelve months.

Its business operations, services, revenue, and performances are directly related to the performance of the Indian wireless telecommunication industry and FTTH services and is therefore affected by factors that generally affect and drive that industry. The wireless telecommunications and the FTTH industry is sensitive to factors such as consumer demand and wireless telecommunications service providers’ debt levels and other obligations and general economic conditions. In addition, the Indian telecommunications industry may face policy changes in response to recent industry developments
and change in regulation. In the event of a decrease or stagnation in demand for wireless telecommunications services in India, any developments that make the provision of tower infrastructure or FTTH service less economically beneficial, the company may experience a material adverse effect on its business, prospects, results of operations, and financial condition.

According to the management, its debt equity ratio of 2.48 as of March 31, 2024, will get drastically reduced post-RI, as borrowings from promoters will get adjusted against their rights entitlement. Their current revenue mix of 5% domestic and 95% from Gulf operations will mark around 40% domestic and 60% Gulf business post completion of expansion plans afoot.

ISSUE DETAILS:
The company is coming out with a book building route FPO for approx. 7500000 equity shares of Rs. 2 each with a price band of Rs. 200 – Rs. 210 per share to mobilize Rs. 150 cr. The FPO opens for subscription on July 22, 2024, and will close on July 24, 2024. The minimum application to be made is for 500 shares and in multiples thereof, thereafter. Post allotment, shares will be listed on NSE SME Emerge. From the Rs. 450 cr. overall issue net proceeds, the company will utilize Rs. 273.00 cr. for FTTH network solutions for 3 lakh home passes, Rs. 42.50 cr. for additional 4G/5G towers, Rs. 30.00 cr. for working capital and the rest for general corporate purposes.

The issue is solely lead managed by Pantomath Capital Advisors Pvt. Ltd., Link Intime India Pvt. Ltd. is the registrar to the issue, and Asit C Mehta Investment Intermediates Ltd. is the market maker for the company. Its IPO market maker is R K Stock Holding Pvt. Ltd.

The average cost of acquisition of shares by the promoter group is Rs. 35.52, and Rs. 38.55 per share.

Post-FPO, paid-up equity capital of Rs. 6.00 cr. after RI, will stand enhanced to Rs. 7.50 cr. Based on the upper cap of FPO price band, the company is looking for a market cap of Rs. 787.50 cr.

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs. 4.75 cr. / Rs. 0.04 cr. (FY22), Rs. 32.52 cr. / Rs. 3.94 cr. (FY23), and Rs. 124.17 cr. / Rs. 15.66 cr. (FY24). The sudden boost in its top and bottom lines in a pre-issue year raise eyebrows and concern over its sustainability going forward.

For the last three fiscals, the company reported an average EPS of Rs. 67.82 and an average RoNW of 13.98%. The issue is priced at a P/BV of 4.39 based on its NAV of Rs. 47.87 as of March 31, 2024, but the post-FPO NAV data is missing from the IPO price band ad. In fact, it reflects IPO price band data as post-FPO NAV, which appears to be a typo error.

If we attribute FY24 earnings on post-FPO paid-up equity capital of the company, then the asking price is at a P/E of 50.23. Thus the issue appears aggressively priced.

For the reported periods, the company has posted PAT margins of 0.78% (FY22), 12.10% (FY23), 12.61% (FY24), and RoCE margins of 6.68%, 29.98%, 6.63% respectively for the referred periods.

Post planned expansion going on stream, the company hopes to outperform and is confident of posting better numbers in coming years with higher domestic contribution.

DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a prudent dividend policy in July 2023, based on its financial performance and future prospects.

COMPARISION WITH LISTED PEERS:
As per offer document, the company has shown Suyog Tele and Kore Digital as their listed peers. They are trading at a P/E of 19.5 and 53.9 (as of July 12, 2024). However, they are not truly comparable on an apple-to-apple basis.

MERCHANT BANKER’S TRACK RECORD:
The Lead Manager associated with the offer has handled 8 public issues during the last three fiscals (including the ongoing one). Out of last 8 listings, no issue closed below the IPO price on listing date.