What you must know about Cellecor Gadgets IPO

Cellecor Gadgets Ltd was incorporated in the year 2020 and is engaged in the procurement, branding and distribution of an array of electronic gadgets and equipment .These include television sets, mobile phones, smart phones, smart wearables, mobile accessories, smart watches, and neckbands. It runs one of the largest distribution and service networks for electronic equipment and smart products in India. Just to give an idea, the company has a network of more than 1,200 service centres and that is complemented by more than 800 distributors across the length and breadth of India. It largely markets through multi-product stores and currently its products are available through a network of more than 24,000 stores across India. It offers 300 products of different variations and mutations and has more than 100 million users across India. The sales of the company have more than doubled in FY23 over FY22.

Cellecor Gadgets Ltd operates across 3 critical business verticals. The first vertical centres around entertainment and communication products. These include smart and conventional television sets. These are available in stock and LED versions equipped with the latest Android ecosystem. It has more than 35 SKUs of televisions, 15 SKUs of sound systems and more than 70 SKUs of mobile phones. The second vertical pertains to peripherals. These include TWS earbuds, neckbands, and smart watches. Under this category, the company has more than 145 SKUs. Finally, there is the third vertical of modern accessories. This includes power banks, data cables, USB chargers, adapters, chargers etc. There are more than 40 SKUs under this category. Cellecor Gadgets Ltd markets its products through an omnichannel approach with weightage to online and brick-and-mortar selling.

Key terms of the Cellecor Gadgets SME IPO

Here are some of the highlights of the Cellecor Gadgets IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 15th September 2023 and closes for subscription on 20th September 2023; both days inclusive. The anchor allocation, if any, would happen a day before the opening of the IPO.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price band for the fresh issue IPO has been fixed in the band of ₹87 to ₹92 per share. For all analysis purposes, the upper end of the price band has been considered.
   
• The IPO of Cellecor Gadgets Ltd has only a fresh issue component with no book built portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion Cellecor Gadgets IPO will issue a total of 55,18,800 shares (55.19 lakhs approximately), which at the upper end of the band price of ₹92 per share aggregates to a total fund raising of ₹50.77 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will comprise of 55.19 lakh shares, which at the upper end of the price band of ₹92 per share will aggregate to ₹50.77 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,76,000 shares. The market makers for the issue are SS Corporate Services Ltd and Kantilal Chhaganlal Securities Ltd. These market makers will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Ravi Agarwal and Nikhil Agarwal. The promoter holding in the company currently stands at 69.95%. However, post the fresh issue of shares, the promoter equity holding will get diluted to 51.54%.
   
• The fresh issue funds will be used by the company for meeting its working capital funding gaps and for general corporate expenses. Part of the monies raised will also go towards meeting the expenses of the issue.       
   
• Narnolia Financial Services Ltd will be the lead manager to the issue, while Skyline Financial Services Private Ltd will be the registrar to the issue. The market making for the issue will be jointly done by SS Corporate Services Ltd and Kantilal Chhaganlal Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 50% of the issue size for the QIBs, 35% for the retail investors and the balance 15% for the HNI / NII investors or the non-retail investors in the IPO of Cellecor Gadgets Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹110,400 (1,200 x ₹92 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,400 shares and having a minimum lot value of ₹220,800. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Cellecor Gadgets IPO (SME)

The SME IPO of Cellecor Gadgets IPO opens on Friday, September 15th, 2023 and closes on Wednesday September 20th, 2023. The Cellecor Gadgets IPO bid date is from September 15th, 2023 10.00 AM to September 20th, 2023, 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 20th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Cellecor Gadgets Ltd

The table below captures the key financials of Cellecor Gadgets Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The numbers would actually be relevant only for the last 2 years since FY21 hardly had any revenues being the first full year of operations. However, the company has picked up growth very fast as is evident from the sales doubling in one year. However, with just 2 years of data, traditional measures may not be too relevant. If you look at the EPS, latest year data is only relevant at ₹6.84 per share. At the IPO price of ₹92 per share, that is about 12-14 times the earnings. However, the net margins have hovered between 2% and 3% and is unlikely to grow substantially above that level. Hence, above average growth in profits may not happen in future, which limits the leverage it can get out of valuations.

For now, investors will have to take a risk on the fairly robust business model in the absence of historical data and the traditionally low margins in this particular segment of business. Net margins are unlikely to improve substantially from current levels. That would be the valuation roadblock that the company may come up against. However, it must be noted that this is more of a sectoral and market growth bet than a valuation bet at this point. Hence investors with a higher risk appetite and longer waiting period must only venture to invest in this IPO.