What you must know Plada Infotech Services IPO?

Plada Infotech Services Ltd was incorporated in 2010, and offers comprehensive business process outsourcing (BPO) services to meet client needs. Its BPO services fall under 4 broad heads. The first is Merchant Acquisition. This includes onboarding new merchants for BFSI companies, lead based visits, cold calls, activation, activation monitoring, reporting tools etc. The second is Field Support. This covers offering contract workers to offsite locations to assign, organize and report on critical tasks for the clients. The third is recruitment and payroll management. Here, the company offers end-to-end payroll management including disbursals and expense management. Lastly, there is Account Management. This entails managing the processes and compliances associated with merchant engagement & activation; apart from data security. It employs 1,400 personnel and handles 12 branch offices. A lot of the management happens remotely.

Key terms of the Plada Infotech Services IPO (SME)

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

• The issue opens for subscription on 29th September 2023 and closes for subscription on 04th October 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 IPO has been fixed at ₹48 per share. Being a fixed price issue, there is no price discovery to happen post the IPO.
   
• The IPO of Plada Infotech Services Ltd has only a fresh issue component and no offer for sale (OFS) component in the IPO. 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 issue portion of the IPO, Plada Infotech Services Ltd will issue a total of 25,74,000 shares (25.74 lakh shares). At the fixed IPO price of ₹48 per share, the total value of the fresh issue portion aggregates to ₹12.36 crore.
   
• Since there is no offer for sale portion, the fresh issue will also be the total size of the issue. As a result, the total issue size of Plada Infotech Services Ltd will also entail the issue of 25,74,000 shares (25.74 lakh shares). At the fixed IPO price of ₹48 per share, the total size of the IPO of Plada Infotech Services Ltd will be₹12.36 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,29,000 shares. The market maker for the issue will be 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 Shailesh Kumar Damani and Anil Mahendra Kotak. The promoter holding in the company currently stands at 89.50%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 62.64%.
   
• The fresh issue funds will be used to purchase laptops and accessories for IT development, repayment of loans taken, for working capital gaps and also partially for general corporate purposes.
   
• While Indorient Financial Services Ltd will be the lead manager to the issue, Bigshare Services Private Ltd will be the registrar to the issue. The market maker for the issue will be Rikhav Securities Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 1,29,000 shares for the market maker for providing liquidity post listing and reducing basis risk. The net offer (net of market maker allocation) will be distributed between the QIBs, retail investors and the HNI / NII investors. The table below captures the gist of the IPO allocation to various categories.

Data Source: RHP filed with SEBI

The minimum lot size for the IPO investment will be 3,000 shares. Thus, retail investors can invest a minimum of ₹144,000 (3,000 x ₹48 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 ₹288,000. 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 Plada Infotech Services IPO (SME)

The SME IPO of Plada Infotech Services IPO opens on Friday, September 29th, 2023 and closes on Wednesday, October 04th, 2023. The Plada Infotech Services IPO bid date is from September 29th, 2023 10.00 AM to October 04th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 04th, 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 Plada Infotech Services Ltd

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

Data Source: Company DRHP filed with SEBI

The company has reported net margins of around 3.73% in the latest year, sharply better than the previous two years. The ROE of the company has been in the vicinity of around 20-30% in last 2 years, which is quite impressive for this line of business. More importantly, the company has maintained its asset sweating ratio at above 1 on a consistent basis as is evident from the asset turnover ratios.

The traditional P/E model pegs the valuation of the stock at around 12X to 14X earnings, which is a relatively good P/E ratio. The downside risks look to be from the debt levels of the company, which is twice of the equity levels and that looks too high for this line of business. That is likely to keep the pressure on margins and it remains to be seen how that ratio plays out after the loan repayments. Investors can look at this stock as a long term bet, but margins in the BPO sector tend to be lower, so valuation expansion is very limited.