New Delhi, December 26, 2017: When BJP government came into the center in May’14 and Mr. Narendra Modi became the 14th prime minister of India. One thing which no body focussed upon and which was overlooked till that date were the SME’s . But due to the SME friendly credit policies, tax benefits and Pradhanmantri Mudra Yojna provided by the Indian government, SME’s are at a boom since 2014.
If we look at the stats of the SME’s companies that got listed on NSE (NSE Emerge) and BSE (BSE SME) since 2013 we can clearly see the change of trend
(The IPO’s inclusion in a fiscal year is considered based on their opening date)
Seeing this data we can clearly see that there has been an increase of almost 160% in the total funds raised by SME’s in year 2016 in comparison to previous year. Even in FY 14-15, just one year after the Modi Government, we saw an increase of 34 % over year FY 13-14. Total no. of companies who applied for IPO also increased over these years.
SME migration to BSE-main platform from SME platform
Over the years 27 companies has migrated from BSE_SME to main platform in trading. When return on these companies analyzed from their day of listing to present day many interesting results came out
| In Number | Avg CAGR (From the day of listing to present day(May 9th’17)) | |
| Total Companies | 27 | 44.92 |
| Positive Returns | 18 | 76.15 |
| Negative Returns | 9 | -17.55 |
Some of the companies performed exceptionally well and gave return of more than 100% YOY in this category .This is the list of top 10 companies which got migrated from the SME platform to main platform according to themoneyroller.com.
| Name of company | CAGR |
| Dhabriya Polywood Limited | 177.58 |
| Suyog Telematics Limited | 147.68 |
| Atishay Limited | 126.86 |
| Oceanaa Biotek Industries Limited | 101.73 |
| Ultracab (India) Limited | 95.28 |
| Kushal Tradelink Limited | 88.15 |
| Tiger Logistics (India) Limited | 77.96 |
| Ashapura Intimates Fashion Limited | 76.73 |
| Captain Polyplast Limited | 71.53 |
| Sangam Advisors Limited | 66.78 |
One thing is for sure investors now can’t afford to ignore SME’s as many SME’s if analyzed in depth and invested accordingly will give you unexpected returns in a small period of time.
Latest Tale in the SME IPO Story: Infobeans Technologies Limited
So the latest tale in the SME IPO story was the an IPO- Infobeans Technologies Limited, an SME based out of Indore in IT sector which has majority of its revenues coming from USA(Almost 98%). The IPO opened on April’18,2017 and closed on April’21,2017. The important thing to notice is the IPO size was 34.93 Crore (excluding the market maker reservation portion) and it received bids of over 1150 Crore (which is almost 33 times oversubscription).
| Category | Share quota | Shares Bidded | Oversubscription |
| Retail Over | 3012000 | 79404000 | 25.36 |
| QIB | 2406000 | 4200000 | 0.75 |
| NII | 606000 | 114896000 | 188.60 |
| Total | 6024000 | 198500000 | 31.95 |
The IPO got special attention from NII’s, in which category it received an oversubscription by more than 188 times. But what made the IPO get oversubscribed almost 32 times.
Is it the IPO euphoria?, is InfoBeans Technology a future Gem?? or is something cooking in the SME’s categories..let’s find out..
The Business
The company provides the following services to clients in various domains ranging from E-Commerce to media and publishing.
The company uses Java and Python technology and tools like Selenium IDE, Selenium Grid and Selendroid to cater to customer needs.
The major presence of the company is in Foreign markets with most of the revenues coming from USA (97% of the total revenue in year 2015-16).
Objective of IPO
Almost 40 % of the funds raised by the IPO will be used for the strategic initiatives and acquisition. As of company has identified some target companies to acquire but has not disclosed details about them. Also, almost 22% of the money will be used for technological development which is quite important in IT sector.
Financials
Revenues, EBIDTA and PAT
Over the past 4 years’ company has seen a significant growth in the revenues with CAGR being 25.88 %. The growth in the EBIDTA and PAT has also been good but their growth is lagging the growth in revenues which signifies probable expansion phase of the company. The EBIDTA and PAT fell in 2017(Expected) despite rise in overall revenues.
EBIDTA and EBIDTA Margins:
Company saw a decline in the EBIDTA in FY-17 (expected) in comparison to FY-16. Also, the EBIDTA grew at a CAGR of 34.90 % over past 5 years the margins were also consistent about the range of 20% which is a good indication about the operational efficiency of the company. The EBIDTA margins decreased in the last Fiscal year which may be due to quick expansion in terms of clients.
Although the PAT has been increasing at a CAGR of 36.63% over the past 5 years. The PAT margins show a decrease from year FY-13 to FY-17.
Risk factors
As the company has almost 97-98% of revenues coming from USA. There is a substantial risk in relation to change in H1B visa policies of USA. In case of stringent policies, the company will have to hire locals work force in USA instead of Indian talent which is almost 3-4 times costlier. This may decrease the profit margins for the company
The major portion of the raised funds through this IPO will be used to acquire a target company (Almost 40%) which is not yet finalized. So, the future growth of the company highly depends on the acquired company which is highly uncertain.
Also, the company has mostly in overseas area so the bottom-line of the company is dependent on the exchange rate. The rules and regulations of various countries can also impact the
Despite of all these reasons the IPO was over-subscribed almost 32 times and is currently trading at 63.5 rupees.
Author’s Note on the Infobeans Technologies Ltd IPO
Infobeans Technologies Ltd is already listed and is currently trading at 63.5. The IPO of the company closed recently.
- As the company has 98 % coming from USA, the trump policies on H1B visa will highly impact the profits of the company. The company is also having presence in other part of the world such as Germany and is planning to enter in Middle east. Geographical diversification will be the key to the future growth
- Post IPO, EPS is 4.35 for FY-17 (According to expected earnings). As far as valuation is concerned the P/E ratio is 14.59 at the current market price of 63.5 which is lower than the industry average. The growth in the PAT over the past 4 years has been at the CAGR of 13.55% which is not so impressive. The expected PAT margins in FY-17 also fall in comparison to the FY-16 margins. The book value of the company is coming out to be 36.96 rupees/ Share.
- The strong rupee in comparison to the dollar will also deplete the company’s top line
- One of the positive aspect for INFOBEAM is the company is still in its early stage (Revenue’s has been growing at 25.88 % over the past 4 years). Company can grow to unprecedented heights if groomed and nurtured properly. The investor should invest for very long term perspective
- The revenues of the overall company have been growing and the revenue from the top 3 clients decreased from 52% in FY-15 to 48% in FY-16. Also, the revenues from top 10 clients decreased from 86% in FY-15 to 80% in FY-16. This stat show that the company has been taking necessary measures to diversify in terms of clients
Investors can put their money in Infobeans Technology Ltd if they want to invest for long term perspective
