What you must know about 3C IT Solutions & Telecoms IPO?

About 3C IT Solutions & Telecoms (India) Ltd

3C IT Solutions & Telecoms (India) Ltd was incorporated in the year 2015 as a company specialized in IT systems integration. The product suite of 3C IT Solutions & Telecoms (India) Ltd is broadly classified into 3 segments; Infrastructure solutions, Digital business solutions, and Consulting solutions. Most of these solutions are customized to the unique needs of the customers. Under infrastructure solutions, 3C IT Solutions & Telecoms (India) Ltd offers device configuration, data protection, networking solutions, IT security solutions etc. Under the digital business solutions vertical, 3C IT Solutions & Telecoms (India) Ltd offers mobile device management (MDM), project management tools, video conferencing tools, cloud implementation etc. Finally, under the consulting solutions vertical, 3C IT Solutions & Telecoms (India) Ltd offers facility management system (FMS), IT Infrastructure leasing, remote infrastructure management etc. 

Highlights of the 3C IT Solutions & Telecoms (India) Ltd (BSE SME IPO)

Here are some of the highlights of the 3C IT Solutions & Telecoms (India) Ltd IPO on the SME segment of the Bombay Stock Exchange (BSE). 

• The issue opens for subscription on 04th June 2024 and closes for subscription on 07th June 2024; both days inclusive.
• The stock of 3C IT Solutions & Telecoms (India) Ltd has a face value of ₹5 per share and it is a fixed price issue. The price for the fixed price issue is set at ₹52 per share. Being a fixed price issue, the question of price discovery does not arise. 
• The IPO of 3C IT Solutions & Telecoms (India) Ltd has a fresh issue component and an offer for sale (OFS) component in the . While the fresh issue portion is EPS dilutive and equity dilutive, OFS is just a transfer of ownership and  hence not EPS or equity dilutive.
• As part of the fresh issue portion of the IPO, 3C IT Solutions & Telecoms (India) Ltd will issue a total of 17,00,000 shares (17.00 lakh shares), which at the fixed IPO price of ₹52 per share aggregates to fresh fund raising of ₹8.84 crore.
• As part of the offer for sale portion of the IPO, 3C IT Solutions & Telecoms (India) Ltd will offer a total of 5,00,000 shares (5.00 lakh shares), which at the fixed IPO price of ₹52 per share aggregates to an offer for sale (OFS) size of ₹2.60 crore. Gold Circle Venture Partners LLP, an early investor shareholder in the company, will offer the entire 5 lakh shares in the OFS.
• As a result, the overall IPO size will comprise of the issue and offer of 22,00,000 shares (22.00 lakh shares) which at the fixed IPO price of ₹52 per share will aggregate to overall IPO size of ₹11.44 crore.
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,12,000 shares. Shreni Shares 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 Ranjit Kulladhaja Mayengbam and Gangarani Devi Mayengbam. The promoter holding in the company currently stands at 72.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 51.66%.
• The fresh issue funds will be used by the company towards funding the working capital gaps in the regular operations of the company and repayment of some portion of the debt. Part of the funds will also be used for general corporate purposes. 
• Kreo Capital Private Ltd will be the lead manager to the issue, and Skyline Financial Services Private Ltd will be the registrar to the issue. The market maker for the issue is Shreni Shares Ltd.

The IPO of 3C IT Solutions & Telecoms (India) Ltd will be listed on the SME IPO segment of the BSE.
 

3C IT Solutions & Telecoms (India) Ltd IPO – Key Dates

The BSE SME IPO of 3C IT Solutions & Telecoms (India) Ltd IPO opens on Tuesday, 04th June 2024 and closes on Friday, 07th June 2024. The 3C IT Solutions & Telecoms (India) Ltd IPO bid date is from 04th 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 – (INE0R7D01018). 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

3C IT Solutions & Telecoms (India) Ltd has already announced the market maker allocation at 1,04,000 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 3C IT Solutions & Telecoms (India) Ltd in terms of allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹1,04,000 (2,000 x ₹52 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 4,000 shares and having a minimum lot value of ₹2,08,000. 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.

There is no maximum size limit for HNI applicants in an SME IPO.

Financial highlights: 3C IT Solutions & Telecoms (India) Ltd

The table below captures the key financials of 3C IT Solutions & Telecoms (India) Ltd for the last 3 completed financial years. 

Data Source: Company DRHP filed with SEBI

The sales growth in the last 3 years have been modest, with marginal degrowth in FY23. Between FY21 and FY23, the sales have grown 50%. With the net profits being small, even the PAT margins are in the range of 1.80-2.00% consistently for the last 3 years. This is much lower than the margins that companies in the industry enjoy. In the latest fiscal year FY23, ROE stood at 27.73% and the ROA at 3.94% with the latter being below par. The ROE has been falling consistently over the last 3 years and that is not an encouraging signal. The sweating ratio, as calculated by the asset turnover ratio, is robust at 2.15X. Overall, while the net margins are below par, the asset turnover is strong and the ROA is quite robust.

The company has latest year EPS of ₹8.87 and we have not included the weighted  average EPS, since the previous year data is not comparable due to the capital change. The latest year earnings are being discounted by the IPO price of ₹52 per share at 5-6 times P/E ratio, which is fairly reasonable. However,  if one looks at the 9-months EPS for FY24 at ₹1.17, it translates into full year extrapolated EPS of ₹1.56 per share. That is going to make the valuation metrics much less attractive, with the P/E ratio on forwards basis at around 33-34 times FY24 earnings. Investors in the IPO have to remember two things. The overall margins of the company on a net basis is much lower than the industry average. Secondly, the P/E ratio at over 33X on a forward extrapolated FY25 basis is hard to justify with such tepid ROA. Investors with a higher risk appetite levels can look to participate in the IPO, but they may have a longer wait as valuations will depend on quarterly earnings traction That is not visible for now. Any buying call in the IPO must be taken up with caution and is meant only for the investors with a higher risk appetite.