What you must know about Updater Services IPO?

Updater Services Ltd, was incorporated in the year 1990 to offer facility management services and business support services. Updater Services Ltd predominantly operates in the Business-to-Business (B2B) services space offering a range of business services. These can be broadly classified under 2 segments viz. the IFM segment and the BSS segment. The internal facilities management (IFM) vertical essential offers production support services, soft services, engineering services, warehouse management, general staffing etc. The other vertical of Business Support Services (BSS) offers audit and assurance services through its subsidiary company. In addition, it also offers additional support services like employee background verification services, airport ground handling services, sales enablement services and a lot more.

Updater Services Ltd caters to more than 2,797 customers across various sectors, with a customer base that straddles domestic customer and global customers. Some of its premium customers for its support service offerings include Procter & Gamble Home Products Limited, Aditya Birla Fashion and Retail Limited, Microsoft India Ltd, Hyundai Motors India Limited, Saint-Gobain India and many more. It manages its operations through offsite and onsite offerings based on the requirement of the customer. It operates across India through a wide network of more than 4,331 locations. These exclude staffing locations; and the entire logistics are managed from 129 points of presence with 116 offices situated in India and 13 offices situated abroad. The public issue of Updater Services Ltd will be lead managed by IIF Securities, Motilal Oswal Investment Advisors and SBI Capital Markets. The company appointed Link Intime India Private Ltd as the registrar to the issue.

Highlights of the IPO issue of Updater Services IPO

Here are some of the key highlights to the public issue of Updater Services IPO.

• Updater Services IPO has a face value of ₹10 per share while the price band for the book building IPO has been set in the band of ₹280 to ₹300 per share. The final price will be discovered within this band through the process of book building.
   
• The IPO of Updater Services Ltd will be a combination of a fresh issue and an offer for sale (OFS). The fresh issue portion comprises the issue of 1,33,33,333 shares (1.33 crore shares approximately), which at the upper price band of ₹300 per share will translate into fresh issue size of ₹400 crore.
   
• The offer for sale (OFS) portion of the IPO comprises the issue of 80,00,000 shares (80 lakh shares), which at the upper price band of ₹300 per share will translate into an offer for sale (OFS) size of ₹240 crore.
   
• Therefore, the overall IPO portion will comprise of the issue of 2,13,33,333 shares (2.13 crore shares approximately), which at the upper price band of ₹300 per share will translate into a total IPO issue size of ₹640 crore.

While the fresh issue will be capital and EPS dilutive, the offer for sale portion will only result in transfer of ownership. There will 3 holders offering shares under the OFS portion as depicted in the table below.

Data Source: Company Red Herring Prospectus (RHP)

The proceeds of the fresh issue portion will be used to repay / prepay outstanding loans availed by Updater Services Ltd and for pursuing inorganic initiatives. The company will also use the funds partly for working capital needs.

Promoter holdings and investor quota allocation quota

The company was promoted by Raghunandana Tangirala, Shanthi Tangirala and Tangi Facility Solutions Private Ltd. Currently the promoters hold 80.58% of the company, which will get diluted post the IPO. As per the terms of the offer, 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while only 10% of the total issue size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors . The stock of Updater Services Ltd will be listed on the NSE and on the BSE. The table below captures the gist of the allocation to various categories.

Lot sizes for investing in the Updater Services IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Updater Services Ltd, the minimum lot size is 50 shares with upper band indicative value of ₹15,000. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Updater Services Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for Updater Services Ltd IPO and how to apply?

The issue opens for subscription on 25th September 2023 and closes for subscription on 27th September 2023 (both days inclusive). The basis of allotment will be finalized on 04th October 2023 and the refunds will be initiated on 05th October 2023. In addition, the demat credits are expected to happen on 06th October 2023 and the stock will list on 09th October 2023 on the NSE and the BSE. Updater Services Ltd offers a very unique combination. It has an established and tested business model; it is into an industry that is considered the future of business management. So, it sort of works both ways for the company. Let us now turn to the more practical issue of how to apply for the IPO of Updater Services Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of Updater Services Ltd

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

Data Source: Company RHP filed with SEBI (All ₹ figures are in crores)

There are few key takeaways from the financials of Updater Services Ltd which can be enumerated as under

1. In the last 2 years, the revenues growth has been robust showing the potential that the facilities management and the business services sector has. Purely on the strength of the prospects of the sector and the past track record, stock looks good, although the P/E ratio of 35 may be slightly on the higher side. It remains to be seen if it leaves enough on the table for the investors.
    
2. While sales have shown consistent growth, the profits have been rather erratic. In fact, the profit margins in the range of 1% to 3% is too low and it remains to be seen if the same improves in the quarters to come. The ROE has fallen in the latest year so a sustainable ROE would remain the question.
    
3. The company has maintained an impressive rate of sweating assets as is evident from the asset turnover ratio. It has consistently averaged above 1.7X, which is a very good sign for a business that has ample scope to grow through sweating.

While pricing of the IPO does matter here, what is more critical is the eventual PAT margins that will sustain and the ROE that will sustain. The P/E of 35 times rolling earnings based on weighted average EPS of the last 3 years is reasonable but to sustain these valuations, the net margins have to improve and the ROE has to sustain closer to the 20% levels. Investors with higher risk appetite and longer holding capacity can look at this IPO.