What you must know about Sattrix Information Security IPO

About Sattrix Information Security

Sattrix Information Security Ltd was incorporated in the year 2013 to develop customer-oriented cyber security solutions. It major focus in on data security, data integrity and offers the complete suite of data security solutions ranging from assessment of risks to actual implementation of the security solution for the client. It offers a predominantly cloud based solution for data security. Sattrix Information Security Ltd designs and builds data security solutions bottom-up in the cloud and also implements such solutions on-premise based on the specific requirements of the client. 
Among the various services offered by Sattrix Information Security Ltd to its clients, their suite begins with the assessment; which includes the vulnerability assessment to data threats, penetration testing, red teaming, anti-phishing solutions etc. It offers the complete IT infrastructure management for such security services to offer a one-stop shop. In addition, Sattrix Information Security Ltd also provides Hybrid IT services and solutions; which includes on-premise and cloud infrastructures to meet the efficiency and flexibility needs of the clients. Above all, the company also provides its clients with the response solutions, including response management, helpdesk, tech support, cybersecurity compliance services etc. The company employs 145 persons on its rolls.

Highlights of the Sattrix Information Security Ltd (BSE SME IPO)

Here are some of the highlights of the Sattrix Information Security IPO on the SME segment of the Bombay Stock Exchange (BSE). 

The issue opens for subscription on 05th June 2024 and closes for subscription on 07th June 2024; both days inclusive.

The stock of the company has a face value of ₹10 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹121 per share. Being a fixed price issue, the question of price discovery does not arise. 

The IPO of Sattrix Information Security Ltd has only a fresh issue component and no offer for sale (OFS) portion. While 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, Sattrix Information Security Ltd will issue a total of 18,00,000 shares (18.00 lakh shares), which at the fixed IPO price of ₹121 per share aggregates to fresh fund raising of ₹21.78 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 overall IPO size will also comprise of the issue of 18,00,000 shares (18.00 lakh shares) which at the fixed IPO price of ₹121 per share will aggregate to overall IPO size of ₹21.78 crore.

Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 92,000 shares. Sunflower Broking 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 Sachin Kishorbhai Gajjar and Ronak Sachin Gajjar. 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 73.53%.

The fresh issue funds will be used by the company towards capex for office fixtures and fittings as well as for installation of IT equipment. Part of the funds will also be used for business expansion cost, including new product and technology development. Part of the funds will also be used for general corporate purposes. 

ISK Advisors Private 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 Sunflower Broking Private Ltd.
The IPO of Sattrix Information Security Ltd will be listed on the SME IPO segment of the BSE.

Sattrix Information Security Ltd IPO – Key Dates

The BSE SME IPO of Sattrix Information Security Ltd IPO opens on Wednesday, 05th June 2024 and closes on Friday, 07th June 2024. The Sattrix Information Security Ltd IPO bid date is from 05th June 2024 at 10.00 AM to 07th June 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 07th June 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 June 11th 2024, will be visible to investors under the ISIN Code – (INE0QUV01010). 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

Sattrix Information Security Ltd has already announced the market maker allocation at 92,000 shares as inventory for market making. Sunflower Broking Private Ltd will be the market maker for the IPO. The breakdown of the overall IPO of Sattrix Information Security Ltd in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹1,21,000 (1,000 x ₹121 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 2,000 shares and having a minimum lot value of ₹2,42,000. 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.

Financial highlights: Sattrix Information Security Ltd

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

Data Source: Company DRHP filed with SEBI

For the latest year, Sattrix Information Security Ltd has reported very strong numbers. The sales have growth nearly 70% in the last 2 years, while the PAT margins stand at 10.93% in the latest year. In the latest fiscal year FY23, ROE stood at 33.51% and the ROA at 15.59% which are fairly attractive ratios. The sweating ratio, as calculated by the asset turnover ratio, is also healthy at above 1.4X. However, this ratio is of less criticality in the IT industry, as it is the spreads or margins that matter more.

The company has latest year EPS of ₹8.00 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹121 per share at 15-16 times P/E ratio. Even if one looks at the 7-months EPS for FY24 at ₹4.33, it translates into full year extrapolated EPS of ₹7.42 per share. That is not going to make any difference to the valuations. Investors in the IPO have to remember two things. The company in question has a strong and diversified client base and the cyber security solutions they offer are only going to grow in importance in the coming quarters. However, investors must look at the stock more from a medium term perspective of 1 year or more and be willing to take on more risk in this case.