What you must know about DelaPlex IPO?

About DelaPlex Ltd

DelaPlex Ltd was incorporated in the year 2004 and has been around in business in India for close to two decades now. , DelaPlex Ltd of India is a subsidiary of DelaPlex Inc, which is based in the US. The parent company DelaPlex Inc has a 51% majority stake in the Indian subsidiary DelaPlex Ltd. The Company provides technology and software development solutions. In addition, it also offers consulting services to clients. Some of the common software and technology solutions provided by DelaPlex Ltd include software-defined data centres, integrated infrastructure, cloud computing, DevOps, security solutions, data analytics, and artificial intelligence. Most of the test engineers of the company are certified which vouches for the quality of the personnel handling the testing.

The registered office of the company is located in Nagpur, Maharashtra with additional presence in Pune, Hyderabad, and Bengaluru. Apart from providing these technology solutions in India, DelaPlex Ltd also provides services to clients in the US and Dubai. Over the last few years, its revenues from the global franchise have been consistently growing. The company currently employs over 300 personnel, with 286 employees on their payrolls as full-time employees and only 14 employees on a contract basis. Most of the contract workers pertain to the non-core activities, which include day-to-day business operations, administrative functions, secretarial jobs, legal and accounting functions etc.

Key terms of the DelaPlex IPO

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

• The issue opens for subscription on 24th January 2024 and closes for subscription on 29th January 2024; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book built issue. The price band for the book built issue has been set in the range of ₹186 to ₹192 per share. The final price of the IPO will be decided by book building within this price band.
   
• The IPO of DelaPlex Ltd has a fresh issue component and also an offer for sale (OFS) 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 issue portion of the IPO, DelaPlex Ltd will issue a total of 18,00,000 shares (18.00 lakh shares), which at the upper band of the book building band of ₹192 per share aggregates to fresh fund raising of ₹34.56 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, there will be a sale of a total of 6,00,000 shares (6.00 lakh shares), which at the upper band of the book building band of ₹192 per share aggregates to total OFS size of ₹11.52 crore. The entire 6 lakh shares are being offered in the OFS by the US parent of the company, DelaPlex Inc.
   
• Therefore, the overall IPO size will comprise of the fresh issue and sale of 24,00,000 shares (24.00 lakh shares) which at the upper IPO band price of ₹192 per share will aggregate to overall IPO size of ₹46.08 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,22,400 shares. Shreni Shares Private Ltd will be the market maker to the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
   
• The company has been promoted by Nitin Sachdeva, Manish Sachdeva, Mark River, Preeti Sachdeva and DelaPlex Inc. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.66%.
   
• The fresh issue funds will be used by the company for advertising and marketing expenses towards brand building; funding office capex and office working capital expenses as well as towards general corporate purposes.
   
• Shreni Shares Ltd will be the lead manager to the issue, and Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue is Shreni Shares Private Ltd.

IPO allocation and minimum lot size for investment

DelaPlex Ltd has already announced the market maker allocation at 1,22,400 shares as inventory for market making. Shreni Shares Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of DelaPlex Ltd in terms of the allocation to various categories are captured in the table below. The anchor allocation will only be updated after the anchor allocation is done.

The minimum lot size for the IPO investment will be 600 shares. Thus, retail investors can invest a minimum of ₹115,200 (600 x ₹192 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 1,200 shares and having a minimum lot value of ₹230,400. 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 DelaPlex IPO (SME)

The SME IPO of DelaPlex Ltd IPO opens on Wednesday, 24th January 2024 and closes on Monday, 29th January 2024. The DelaPlex Ltd IPO bid date is from 24th January 2024 at 10.00 AM to 29th January 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 29th January 2024.

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. The credit of shares to the demat account on January 31st 2024, will be visible to investors under the ISIN Code – (INE0SK801018).

Financial highlights of DelaPlex Ltd

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

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The sales and the revenues have grown at a stable rate over the last two years, but the good thin is that the PAT margins are quite attractive at above 14% in the latest year and in double digits in the previous two years.
   
• The ROE at 33.7% and the ROA at nearly 30% has been steady and robust over the last 3 years. The company brings steady growth in ratios apart from the fact, that it has the backing of a US parent. The net outcome is that valuations get a big boost from a high level of ROE at this juncture.
   
• The asset turnover ratio or the sweating ratio has been robust, although that may not be too critical for an IT company. What would really matter if the operating margins and the return on the capital and both are extremely robust int his case. ROA of 30% is a solid number to have.

The company has latest year EPS of ₹10.83 and being a growth story, we can focus more on the current year than on the weighted average of previous years. Either ways, the valuations look reasonable if you consider latest year EPS at 17.7 times P/E discounting. The discounting may actually be attractive, if you consider the steady growth and the robust ROE of the company. What matters is the intangibles that the company like promoters with skin in the game and long standing relationships with the customers. Apart from a high growth and high potential market, the company has also built up a scalable model, that is being monetized in India and abroad. Investors can look at this IPO from a longer term perspective, although the cyclical risks in this business tends to be quite high and the reliance on tech spending is still substantially US dependent.