What you must know about ROX Hi-Tech IPO?

ROX Hi-Tech Ltd is a high end provider of customer-centric IT solutions. The company is 21 years old, having been incorporated in the year 2002. ROX Hi-Tech Ltd offers an end-to-end and comprehensive range of distributed IT solutions. This, inter alia, includes consulting, enterprise, and end-user computing. It also comprises of managed printing, and other network related services. While it does offer parcels of IT solutions, it is positioned as a full-service IT solutions provider encompassing the entire range and aimed towards digital transformation.

The company also specializes in artificial intelligence and machine learning or AI and ML related solutions for tis customers. Apart from IT security solutions, ROX Hi-Tech Ltd also offers data centre solutions which are available; both On-premises and Cloud. It also offers IOT (internet of things) related services to its clients. Over the years, ROX Hi-Tech Ltd  has evolved from being an IBM Business Partner into a prominent player in the IT segment on a stand alone basis. Its revenues have grown at a steady clip over the last 3 years.

Key terms of the ROX Hi-Tech IPO SME

Here are some of the highlights of the ROX Hi-Tech IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 07th November 2023 and closes for subscription on 09th November 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹80 to ₹83 per share. Being a book built issue, the final price will be discovered via book building process.
   
• The IPO of ROX Hi-Tech Ltd has a fresh issue component as well as a 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, ROX Hi-Tech Ltd will issue a total of 60,17,600 shares (60.18 lakh shares approximately), which at the upper IPO band price of ₹83 per share aggregates to a total fresh fund raising of ₹49.95 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, the selling shareholders will offer a total of 5,47,200 shares (5.47 lakh shares approximately), which at the upper IPO band price of ₹83 per share aggregates to a total OFS size of ₹4.54 crore. The OFS is being offered by the promoter shareholders.
   
• Consequently, the overall IPO of ROX Hi-Tech Ltd will entail the issue and sale of a total of 65,64,800 shares (65.65 lakh shares approximately), which at the upper IPO band price of ₹83 per share aggregates to a total fresh fund raising of ₹54.49 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 8,48,000 shares. The market maker for the issue is yet to be announced 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 Jim Rakesh and Sukanya Rakesh. The promoter holding in the company currently stands at 83.29%. However, post the fresh issue of shares in the IPO and the offer for sale, the promoter equity share will get diluted on a proportionate basis to 58.95%
   
• The fresh issue funds will be used by the company for capex and for setting up network operations centres. It will also use the funds to set up a medical automation centre in Chennai, as well as global software delivery centre in Noida, near Delhi.
   
• Swaraj Shares and Securities Private Ltd will be the lead manager to the issue, and Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is yet to be announced.

IPO allocation and minimum lot size for investment

ROX Hi-Tech Ltd has allocated 12.92% of the issue size for the market makers to the issue. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of ROX Hi-Tech 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 1,600 shares. Thus, retail investors can invest a minimum of ₹132,800 (1,600 x ₹83 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 3,200 shares and having a minimum lot value of ₹265,600. 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 ROX Hi-Tech IPO (SME)

The SME IPO of ROX Hi-Tech Ltd IPO opens on Tuesday, November 07th, 2023 and closes on Thursday, November 09th, 2023. The ROX Hi-Tech Ltd IPO bid date is from November 07th, 2023 10.00 AM to November 09th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is November 09th, 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 ROX Hi-Tech Ltd

The table below captures the key financials of ROX Hi-Tech 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 revenue growth has been stable in the last 3 years, although that stability is not reflected fully in the profit performance. The top line numbers have doubled over the last 2 years, which is a positive.
   
• The net margins and the ROE are very attractive, but only in the latest year and hence the story would be all about how well these margins sustain. With IT companies generally enjoying over 20% EBITDA margins, this should be positive going ahead.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 2 on a consistent basis. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector.

The company has been too volatile in terms of the growth and profits in last couple of years so the call on valuations would be tough. However, it is a good model based on the emerging IT model. Small IT companies have seen good traction in recent times and that should make the IPO worth considering.