The first week of February is here. And February means the Union Budget for the stock market investors. Everyone wants to know what that budget has for them. But amid the budget, there are several companies coming up with an IPO. Its a SME IPO, One such company is Safa Systems and Technologies Limited. So let’s discuss in detail about the prospects of the company’s business.
Safa Systems and Technologies Limited started its business in the year 2012 as a new entrant in the field of consumer durables like mobile phones and accessories. The company was appointed as the sole distributor of Micromax smartphones in Kerala. In FY18, the company decided to create a portfolio of brands rather than sticking to a single brand and it looks to capture 25-30% of the smartphones market size in the state of Kerala.
Presently, the company is in the business of distributorship of consumer durable products like mobile phones, its related accessories, tablets, LED TVs, home appliances, and wearable devices of various brands like Xiaomi, Oppo, Tecno, Micromax, and Oneplus in Kerala. The company works in the B2B model.
The following are the details of the company’s IPO:
The Safa Systems and Technologies IPO is slated to open on January 28, 2022 for subscription and will close on February 1, 2022.
The IPO has a market lot size of 10,000 shares. A retail individual can apply for up to 2 lots.
The IPO price is fixed at ₹10 per equity share. The face value of the company’s share is also the same.
The company will list on the BSE SME platform.
The company is issuing 40 lakh shares of ₹10 each, which sums up to an amount of ₹4 crores.
The holding of company’s promoters will come down to 73.47% post the IPO from the current 100%.
Objectives of the IPO
The following are the objectives of the IPO:
The company will use ₹320 lakhs from the IPO proceeds to meet the working capital requirements.
It will use ₹30 lakhs from the IPO proceeds towards general corporate purposes.
And ₹49.50 lakhs will go towards meeting the public issue expenses.
Further, the company believes that by listed its shares on the exchange, it will be able to enhance its corporate identity and brand image.
Key strengths
The following are the key strengths of the company:
The promoters of the company have multiple years of experience in this line of business and they have operated several group companies in several sectors. In the telecommunications and electronic accessories business, the company has established itself as a leading player.
The company’s established relationships with its customers and suppliers help ensure stability in demand and uninterrupted supply of products. The company has successfully built a strong client base.
The company has several quality and ISO certifications in its portfolio.
Key risks
The following are the key risks in the company’s business:
The company’s business majorly depends on the brands of products that it offers for sale to customers. Any major decline in the brand value of products it sells can have a negative impact.
A substantial part of the company’s income is dependent on few clients. This brings in concentration risk.
The company has several contingent liabilities in its balance sheet. It has issued a bank guarantee of ₹7.5 crore to Xiaomi Technology as security deposit.
Even the company’s registered office is leased.
As discussed, the company’s business operations are concentrated only in the state of Kerala. Any adverse event in this region could disrupt the company’s business.
The company has earned negative cashflow from operations in the past three financial years.
Fundamentals of the company
The following are the details about the fundamentals of the company:
The company’s total revenue from operations decreased from ₹255 crores in FY19 to ₹208 crores in FY21.
The company’s EBITDA increased from ₹2.26 crores in FY19 to ₹2.33 crores in FY21.
The company’s total borrowings increased from ₹204 crores in FY19 to ₹289 crores in FY21.
The company’s net asset value per share as of October 2021 was ₹10.
The company’s earnings per share as of October 2021 was ₹0.32.
The company’s net worth increased from ₹8.17 crores in FY19 to ₹8.43 crores in FY21.
The company’s profit after tax declined from ₹35 lakhs in FY19 to ₹29 lakhs in FY21.
Mr. Faizal Abdul Khader and Mr. Bavaraparambil Hydrose are the promoters of the company.
Peer Comparison
According to the draft prospectus, the company believes that no listed company in India offers products and services across the various business segments in which it operates. Hence a direct comparison is not possible in this regards.
Conclusion
These were the details of Safa Systems and Technologies Limited IPO. Investors should conduct their own due diligence before subscribing to the IPO and keeping in mind the volatility in the stock market amid the budget session.
