What you must know about Graphisads IPO?

Graphisads Ltd was incorporated in the year 1987 to provide integrated marketing, advertising, and communications agency services, offering 360-degree solutions to clients. It caters to the government sector, private sector and to PSUs. Graphisads Ltd offers an end-to-end communication solutions platform for advertising comprising of brand strategy, communication strategy, media planning, media buying etc. It facilitates publicity and media through various sources including newspapers, magazines, radio, and TV. In addition, it also handles dynamic platforms like events & exhibitions, digital media, outdoor hoardings, digital screens etc. It has received several awards and accolades in the last decade. Graphisads is empanelled with DAVP in the multimedia category. It has ownership of more than 1000 outdoor advertising units and is fully eligible to handle state and central government publicity campaigns at extant DAVP rates.

As part of its advertising and media ecosystem, Graphisads Ltd  has more than 100 media and publicity professionals on its rolls and has scripted the brand success story of more than 500 such brands. Graphisads Ltd is currently present in over 15 cities and it is a fully accredited agency with Indian Newspaper Society, DD, and All India Radio. Some of its key clients in the government backed units include Air India and Bank of Baroda. In the private sector, its clients include PC Jewellers, Kinetic Group, Action Shoes, Baidyanath, PHD Chamber of Commerce, Jaypee group etc. Across the board, Graphisads Ltd empowers and enables these clients to carve a niche in the competitive market place.

Key terms of the Graphisads IPO (SME)

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

• The issue opens for subscription on 30th November 2023 and closes for subscription on 05th December 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a fixed price issue. The issue price for the fresh issue IPO has been fixed at ₹111 per share. Being a fixed price issue, there is no question of price discovery in this case.
   
• The IPO of Graphisads 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 of the IPO, Graphisads Ltd will issue a total of 48,12,000 shares (48.12 lakh shares), which at the IPO fixed price of ₹111 per share aggregates to a total IPO fund raising of ₹53.41 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 also comprise of 48,12,000 shares, which at the fixed IPO price of ₹111 per share will aggregate to ₹53.41 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,42,400 shares. The market maker for the issue is Rikhav Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Mukesh Gupta, Alok Gupta and Padma Gupta. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.66%. The IPO is normally mandated to bring the promoter stake below 75%, which is part of the listing agreement with the stock exchanges.
   
• The fresh issue funds will be used by the company for repayment of certain borrowings and for funding the working capital needs of the company. A part of the issue proceeds will also go towards meeting general corporate expenses.
   
• First Overseas Capital 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 Rikhav Securities Ltd.

IPO allocation and minimum lot size for investment

Graphisads IPO has allocated 5.04% of the issue size for the market makers to the issue, Rikhav Securities Ltd. The net offer (net of market maker allocation) will be divided between the retail investors and the HNI / NII investors in equal proportion. The net offer in this case is the offer size, net of the market maker quota allocation. The breakdown of the overall IPO of Graphisads Ltd in terms of the allocation to various categories is captured below.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹133,200 (1,200 x ₹111 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 ₹266,400. 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 Graphisads IPO (SME)

The SME IPO of Graphisads IPO opens on Thursday, November 30th, 2023 and closes on Tuesday, December 05th, 2023. The Graphisads IPO bid date is from November 30th, 2023 10.00 AM to December 05th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 05th, 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 Graphisads Ltd

The table below captures the key financials of Graphisads 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.

• The revenue spike has been sharp in previous year but flat in the current year. However, over a 2-year period, the revenues have nearly doubled while the net profits have grown ten-fold, albeit on a very low base.
   
• The net margins have been around the 5% in the latest year. This has been consistent around these levels. ROE at 13% and ROA at around 0.5% may find it tough to justify the valuations based on future growth.
   
• Despite being a capital light business, the asset turnover ratio or the asset sweating ratio has been consistently very low, which is surprising. Hopefully, the loan repayment post the IPO should be able to improve this ratio, but it remains a challenge.

The company has weighted average EPS of ₹8.29 over the last 3 years, which discounts the IPO price of ₹111 per share by around 13.4 times P/E ratio. However, a lot will depend on what level the EPS sustains in the long run since the numbers have been volatile and margins have been slow to grow. By latest year valuations, the company looks moderately attractive, so it is the sustainability of EPS and higher levels of ROE that will make the cut. Strategically, investors must appreciate that this IPO is higher on the risk scale, although their valuations are moderate. Investors willing to take a longer term view and assume higher levels of risk can look at this IPO. However, caution is advised.