What you must know about E-Factor Experiences IPO?

E Factor Experiences Ltd was incorporated in 2006, as an Indian event management company. E Factor Experiences Ltd provides event experiences, event services, technology-based permanent & semi-permanent multimedia light & sound installations and specialized turnkey event assignments; apart from wedding management and social event solutions. The company has its offices in Delhi, Noida, Jaipur, and Odisha with its team of 32 employees. Some of the major events managed by E Factor Experiences Ltd include Eco Retreat (Odisha), Dot Fest in Bhubaneswar, Laser Show and Fireworks at Deepotsav, Kashi and the Baba Saheb - The Grand Musical Show. The company recently acquired 46.33% stake in Untamed Leisure and Hospitality Pvt Ltd, which is engaged in the business of event management and hospitality; apart from other leisure and entertainment activities.

Key terms of the SME IPO of E Factor Experiences Ltd

Here are some of the highlights of the E Factor Experiences IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 27th September 2023 and closes for subscription on 03rd October 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a Book Built issue. The issue price band for the IPO has been set in the range of ₹71 to ₹75 per share. The final price will be discovered through the process of book building.
   
• The IPO of E Factor Experiences 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, E Factor Experiences Ltd will issue a total of 34,56,000 shares (34.56 lakh shares). At the upper band of the IPO price of ₹75 per share, the total value of the fresh issue portion aggregates to ₹25.92 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 E Factor Experiences Ltd will also entail the issue and sale of 34,56,000 shares (34.56 lakh shares). At the upper band of the IPO price of ₹75 per share, the total size of the IPO of E Factor Experiences Ltd will be₹25.92 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,74,400 shares. The market maker for the issue will be Hem Finlease 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 Jai Thakore, Samir Garg, and Manika Garg. The promoter holding in the company currently stands at 99.99%. However, post the fresh issue of shares, the promoter equity holding share will get diluted to 73.59%.
   
• The fresh issue funds will be used by the company for investing in its subsidiaries, repayment of certain borrowings and for working capital needs. Part of the funds would also be allocated towards general corporate expenses.
   
• While Hem Securities Ltd will be the lead manager to the issue, Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue will be Hem Finlease Ltd.

IPO allocation and minimum lot size for investment

Out of the total shares on offer, the company has allocated 1,74,400 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.

The minimum lot size for the IPO investment will be 1,600 shares. Thus, retail investors can invest a minimum of ₹120,000 (1,600 x ₹75 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 ₹240,000. 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 E Factor Experiences Ltd IPO (SME)

The SME IPO of E Factor Experiences Ltd IPO opens on Wednesday, September 27th, 2023 and closes on Tuesday, October 03rd, 2023. The E Factor Experiences Ltd IPO bid date is from September 27th, 2023 10.00 AM to October 03rd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is October 03rd, 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 E Factor Experiences Ltd

The table below captures the key financials of E Factor Experiences Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has reported net margins of 6.4% in the current year, whereas in previous years the net margins are not comparable due to sharply lower sales. The growth of sales has been quite frenetic in the last couple of years, largely on the back of large contracts for event management. However, the ROE is consistently attractive and the economics should improve further if the company is able to sweat its assets at a consistently good rate as it is doing now at almost 2X.

The traditional P/E model becomes difficult to apply in the case of E Factor Experiences Ltd as the company has delivered a relatively better performance only in the latest year. Also, the P/E equations change drastically if the current year is included but remain unattractive if the latest FY23 year is not included. If you consider the latest earnings of ₹7.82 per share, then the IPO price upper band of ₹75 per share is a P/E ratio of around 9. This should look more attractive if one looks at forward P/E. With robust order flows and the business of event management taking off, investors in the IPO can look at it from a 1 year perspective.