What you must know about HRH Next Services IPO?

HRH Next Services Ltd was incorporated in the year 2007 as a business process outsourcing (BPO) service provider. Among other things, HRH Next Services Ltd offers services like chat support, backend support, voice support and email support. Its client profile is largely based on sectors like telecom, foodtech, auto-tech, ecommerce, fintech, edtech, healthcare, and banking. Broadly, the company provides inbound voice process services and outbound voice process services. Under Inbound voice process services, HRH Next Services Ltd offers services like automated call handling, automated call response system, customized call handling, call to action and resolution. What about the outbound voice services?

Outbound Voice Process offered by HRH Next Services Ltd include Outbound Sales and Outbound Services. Outbound Sales typically encompasses lead generation, up-selling and cross-selling. It also includes customized ad campaigns and product launch campaigns. The Outbound Services business comprises of customer service follow-up calls, renewal reminders, order and invoice information, problem resolution and escalations. Currently, HRH Next Services Ltd has a team of 284 employees to handle day-to-day operations, administrative tasks, secretarial work, legal matters, marketing, and accounting functions.

Key terms of the SME IPO of HRH Next Services Ltd

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

• The issue opens for subscription on 27th December 2023 and closes for subscription on 29th December 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is fixed price issue. The issue price for the IPO has been fixed at ₹36 per share. Being a fixed price issue, there is no question of any price discovery in this case.
   
• The IPO of HRH Next Services Ltd has only a fresh issue component and no 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 portion of the IPO, HRH Next Services Ltd will issue a total of 26,58,000 shares (26.58 lakh shares), which at the fixed IPO price of ₹36 per share aggregates to a fresh fund raising of ₹9.57 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the total IPO size will also comprise of the issue of 26,58,000 shares (26.58 lakh shares) which at the fixed IPO price of ₹36 per share will aggregate to overall IPO size of ₹9.57 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,35,000 shares. The market maker for the issue is Nikunj Stock Brokers 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 Ankit Sanjay Shah, Parikshit Pankaj Shah, and Tara Sanjay Shah. The promoter holding in the company currently stands at 97.88%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 69.61%.
   
• The fresh issue funds will be used by the company for expansion of its services via two call centres, capex for new computer system and for working capital needs. Part of the monies raised will also go for meeting the general corporate expenses of the company.
   
• Finshore Management Services Ltd will be the lead manager to the issue, and Cameo Corporate Services Ltd will be the registrar to the issue. The market maker for the issue is Nikunj Stock Brokers Ltd.

IPO allocation and minimum lot size for investment

HRH Next Services Ltd has allocated 5.08% of the issue size for the market makers to the issue, Nikunj Stock Brokers Ltd. The net offer (net of market maker allocation) will be divided equally between the retail investors and the HNI / NII investors. The breakdown of the overall IPO of HRH Next Services Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹108,000 (3,000 x ₹36 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 6,000 shares and having a minimum lot value of ₹216,000. 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.

Key dates to be aware of in the HRH Next Services Ltd IPO (SME)

The SME IPO of HRH Next Services Ltd IPO opens on Wednesday, December 27th, 2023 and closes on Friday, December 29th, 2023. The HRH Next Services Ltd IPO bid date is from December 27th, 2023 10.00 AM to December 29th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 29th, 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. The credit of shares to the demat account on January 02nd 2023, will be visible to investors under the ISIN Code – (INE0R3501012).

Financial highlights of HRH Next Services Ltd

The table below captures the key financials of HRH Next Services 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 revenues have been consistently growing in the last three years, but the profits have managed to achieve scale only in the latest year. Hence previous comparisons may not be too relevant as the growth looks optically too high.
   
• The net margins have been in the range of 6-7% in the latest year. However, here again, the comparisons are tough since the company had seen a sharp profit variations over the years. However, ROE stays robust at above 33%, as does the ROA over 12%.
   
• Being a capital light business, the asset turnover ratio is on the attractive side. However, what would really matter in this case is the spread ratio and not so much the asset turnover ratio. However, the ROA combined with sweating ratio is quite attractive.

The company has latest year EPS of ₹5.61 and weighted average EPS of ₹3.37 for the last 3 years. On the latest year EPS, the P/E ratio works out to the range of 6X to 7X times. This is fairly attractive for the kind of industry that the company operates as capital intensity is quite low and the margins can gradually grow in tune with the volumes. Investors should be wary of the business model of the company which is not in a position to create too many entry barriers. Investors in the IPO must be conscious of the higher level of risk involved in the stock and position their trade accordingly. However, valuations are relatively attractive at this point of time.