What you must know about Diensten Tech IPO?

Diensten Tech Ltd – About the company

Diensten Tech Ltd was incorporated in the year 2007 to offer technology and IT related services. Diensten Tech Ltd offers information technology (IT) professional resourcing, IT consulting, IT training and software AMC (annual maintenance contract) services. It broadly provides services across 2 verticals viz. IT support and consulting, and Corporate training services. Under the IT support and consulting services, Diensten Tech Ltd provides end to end IT professional resourcing, IT consulting, and software AMC services catering to various industry segments. Some of the industry segments that Diensten Tech Ltd caters to include; information technology industry, banking & finance (BFSI), automotive & engineering, telecom, healthcare, retail, and entertainment. The company has deep rooted corporate relationships in each of these sub-verticals and industry groups.

The second vertical of Diensten Tech Ltd  pertains to corporate training services. Under this head, the company provides technical and soft skills-based training services; with modules that are granular and customized to the specific needs of the clients. Their training repertoire include ERP and business application training, behavioural training, preliminary induction training, employee onboarding training, domain-specific skill training, CSR (Corporate Social Responsibility) implementation programs, disaster, and safety management training (redundancy training), apart from education tourism to its clients. Currently, the company employs more than 458 employees on its rolls. 

Highlights of the Diensten Tech Ltd  SME IPO

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

• The issue opens for subscription on 26th June 2024 and closes for subscription on 28th June 2024; both days inclusive.
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹95 to ₹100 per share. Being a book built issue, the final price will be discovered within this band.
• The IPO of Diensten Tech Ltd has entirely a fresh issue component and no offer for sale (OFS) portion. While the fresh issue portion is EPS dilutive and equity dilutive, the OFS is just a transfer of ownership and  hence is not EPS or equity dilutive.
• As part of the fresh issue portion of the IPO, Diensten Tech Ltd  will issue a total of 22,08,000 shares (22.08 lakh shares), which at the upper band IPO price of ₹100 per share aggregates to fresh fund raising of ₹22.08 crore.
• Since there is no offer for sale, the fresh issue will also double up as the total issue size. Hence the overall IPO size will also comprise of the fresh issue of 22,08,000 shares (22.08 lakh shares) which at the upper band IPO price of ₹100 per share will aggregate to overall IPO size of ₹22.08 crore.
• Like every SME IPO, this issue also has a market making portion. The company has set aside a total of 1,10,400 shares as quota for market making inventory. Share India Securities Ltd will be the market maker for the issue. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs.
• The company has been promoted by JK Trades Ltd, Abhishek Singhania, Vipul Prakash, and Tina Prakash. The promoter holding in the company currently stands at 95.50%. However, post the fresh issue of shares, promoter equity holding share will get diluted to 69.97%.
• The fresh issue funds will be used by the company to pay the outstanding consideration for the professional services & training division from JK Technosoft Ltd and to meet the working capital needs of the company. A small part of the IPO proceeds has also be set aside for general corporate purposes.
• Corporate Professionals Capital Private Ltd will be the lead manager to the issue, and KFIN Technologies Ltd will be the registrar to the issue. The market maker for the issue is Share India Securities Ltd.

The IPO of Diensten Tech Ltd  will be listed on the SME IPO segment of the NSE.
 

Diensten Tech Ltd  IPO – Key Dates

The SME IPO of Diensten Tech Ltd  IPO opens on Wednesday, 26th June 2024 and closes on Friday, 28th June 2024. The Diensten Tech Ltd  IPO bid date is from 26th June 2024 at 10.00 AM to 28th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 7.00 PM on the issue closing day; which is 28th June 2024.

Data Source: Company RHP

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 July 02nd 2024, will be visible to investors under the ISIN Code – (INE0JRD01019). This allocation to the demat account is only applicable to the extent of the allocation of shares and if no allocations are made in the IPO, then no credit would be visible in the demat account.

IPO allocation and minimum investment lot size

Diensten Tech Ltd  has announced a market maker allocation of 1,10,400 shares, which will be used as inventory for market making. Share India Securities Ltd has been appointed as 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 Diensten Tech Ltd  in terms of allocation to categories are captured below.

Data Source: Company RHP

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹1,20,000 (1,200 x ₹100 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 ₹2,40,000. 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.

There are no upper limits for investments by HNIs / NIIs in the IPO of Diensten Tech Ltd. 

Financial highlights: GP Eco Solutions India Ltd (GPES Solar)

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

Data Source: Company RHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years; i.e., from FY21 to FY23, being the latest year. 

• The revenues over the last 3 years have been extremely erratic, falling sharply in FY22 and then rising sharply from a low base. It is tough to figure out what is the sustainable revenues for the company and that may need some more quarters of data. The company has negative reserves in all the years.
• Net margins are too low in the latest year at 0.43% and here again it is very erratic. Even the ROE and the ROA are low, but even this is magnified due to the equity value having been eroded in the last 3 years. Hence, ROE data must be taken with a pinch of salt by investors in this case.
• The asset turnover ratio or the sweating ratio is relatively strong, but there are some red flags on the balance sheet items of the company. For example, on the liabilities side, in FY23, over 50% of the balance sheet is accounted for by short term borrowings and current liabilities. If you look at the FY24 data, then the sum of long term borrowings and short term borrowings  are nearly 60% of the balance sheet. 
• Also, the assets side is equally intriguing. For FY23, nearly 85% of the total assets are represented by trade receivables, intangible assets, and other current assets. If you look at FY24, then 70% of the assets side is advances given and trade receivables. That surely raises some red flags about the robustness of the business model.

Due to the erratic nature of earnings and the red flags on the balance sheet composition, the traditional valuation parameters do not seem to fit in. The investors will have to really evaluate if they want to invest in this IPO. The question marks are too many and investors should be cautious about these.