What you must know about Net Avenue Technologies IPO?

Net Avenue Technologies Ltd was incorporated in the year 1998 to provide online digital direct-to-consumer (D2C) business for Indian Ethnic wear and accessories. The target audience was Indians living abroad, with focus on countries with a large NRI population. Eventually, the company had also diversified into Cbazaar.com; which is a global Indian Ethnic Fashion brand specializing in Direct-to-Consumer Online Retail with focus on the markets of the US, UK, and Canada. It also launched Ethovog.com, which was an online apparel store offering a wide range of budget-friendly fashion choices for women, teens, and small kids.

Net Avenue Technologies Ltd primarily caters to South Asian countries with a  large Indian population and where people are trying to stay close to their roots. The company has a wide array of clients based out of the US, the UK, Australia, and Canada; all countries with sizable Indian NRI population. It has distribution tie-up with big names like Myntra, Nykaa, and Ajio. Net Avenue Technologies Ltd has a fairly wide and spread out product portfolio comprising of Lehenga Choli, Salwar Kameez, Gowns, Kurtas, Sherwani, Kids wear, and Accessories. In 2008 the company launched its own proprietary luxury brand (RaiR), to cater to the fast-growing mid to high end designer clothing brand. The Cbazaar.com digital property of Net Avenue Technologies Ltd has been rated as one of the best online shopping portals in the US in 2020 and was also ranked one of the fastest-growing brands in the US in the year 2022.

Key terms of the Net Avenue Technologies IPO (SME)

Here are some of the highlights of the Net Avenue Technologies IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 30th November 2023 and closes for subscription on 04th December 2023; both days inclusive.
   
• The company has a face value of ₹1 per share and it is a book building issue. The issue price for the fresh issue IPO has been fixed in the price band of ₹16 to ₹18 per share. Being a book built issue, the final price will be discovered via book building process.
   
• The IPO of Net Avenue Technologies Ltd has only a fresh issue component with no book built portion. 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 portion of the IPO, Net Avenue Technologies Ltd will issue a total of 57,00,000 shares (57 lakh shares), which at the upper IPO band price of ₹18 per share aggregates to a total fund raising of ₹10.26 crore.
   
• Since there is no offer for sale portion, the total size of the fresh issue will also be the total size of the IPO. Hence the total IPO size will also comprise of 57,00,000 shares, which at the upper price band of ₹18 per share will aggregate to ₹10.26 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 2,88,000 shares. The market maker for the issue is Shreni Shares Private 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 Rajesh Nahar and Ritesh Katariya. The promoter holding in the company currently stands at 45.31%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 33.27%.
   
• The fresh issue funds will be used by the company for market awareness, customer acquisition, and for funding working capital expenses. A part of the issue proceeds will also go towards meeting general corporate expenses.
   
• Shreni Shares 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 Shreni Shares Private Ltd.

IPO allocation and minimum lot size for investment

Net Avenue Technologies Ltd has allocated 5.11% of the issue size for the market makers to the issue, R.K. Stock Holding Private Ltd. The net offer (net of market maker allocation) will be divided between the qualified institutional buyers (QIBs), retail investors and the HNI / NII investors. The breakdown of the overall IPO of Net Avenue Technologies Ltd in terms of the allocation to various categories are captured in the table below.

The minimum lot size for the IPO investment will be 8,000 shares. Thus, retail investors can invest a minimum of ₹144,000 (8,000 x ₹18 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 16,000 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 Net Avenue Technologies IPO (SME)

The SME IPO of Net Avenue Technologies IPO opens on Thursday, November 30th, 2023 and closes on Monday, December 04th, 2023. The Net Avenue Technologies Ltd IPO bid date is from November 30th, 2023 10.00 AM to December 04th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 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 Net Avenue Technologies Ltd

The table below captures the key financials of Net Avenue Technologies Ltd for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

• The revenue spike has been sharp in the last two years, although that is due to a very low base. That also makes the numbers not comparable over the last 3 years. The last two years saw sales more than doubling.
   
• The net margins have been around the 5% in the latest year. Due to negative net worth previously, the net margins and ROE are not exactly comparable with previous year. Robus ROE holds the key as it sustains valuations.
   
• Being a capital light business, the asset turnover ratio or the asset sweating ratio has been above 2 on a consistent basis. This may not be too representative as here the expenses ratio would matter more than the asset turnover ratio, in this sector.

The company has latest year EPS of ₹2.10 which discounts the IPO price of ₹18 per share by around 8.5 times on current earnings. However, a lot will depend on what level the EPS sustains in the long run since growth has been quite robust only in the latest year. By latest year valuations, the company relatively attractive, so it is the sustainability of EPS and higher levels of ROE that will make the cut. Strategically, investors must appreciate that this IPO is higher on the risk scale, although their valuations look reasonable. Also, investors must take a longer term view so that valuation advantage of the digital business can be fully leveraged.