What you must know about Veritaas Advertising IPO?

About Veritaas Advertising Ltd

Veritaas Advertising Ltd was incorporated in 2018 to as a 360-degree provider of advertising and publicity solutions across omnichannel platforms. It owns ad spaces in West Bengal, Guwahati, and Shillong; so, it not only distributes media services but also owns the media properties. Veritaas Advertising Ltd provides brand strategy, events, and outdoor (OOH) newspaper insertions, brochures, and display of outdoor hoardings. As part of its suite of offerings, the company offers bran awareness programs, customer education programs, building brand recall, customer engagement and conversions. It has some marquee clients like the TVS group, Honda, Ultratech Cement, Star Cement, Greenply, ITC etc. Veritaas Advertising Ltd has over 70 employees on its rolls.

Highlights of the Veritaas Advertising SME IPO

Here are some of the highlights of the Veritaas Advertising IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 13th May 2024 and closes for subscription on 15th May 2024; both days inclusive.
   
• The stock of the company has a face value of ₹10 per share and it is a book built issue. The price for the book building issue is set in the price band of ₹109 to ₹114 per share. Being a book built issue, the final price will be discovered within this band.
   
• The IPO of Veritaas Advertising Ltd has only a fresh issue component and no offer for sale (OFS) 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 issue portion of the IPO, Veritaas Advertising Ltd will issue a total of 7,44,000 shares (7.44 lakh shares), which at the upper band IPO price of ₹114 per share aggregates to fresh fund raising of ₹8.48 crore.
   
• Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 7,44,000 shares (7.44 lakh shares) which at the upper band IPO price of ₹114 per share will aggregate to overall IPO size of ₹8.48 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 37,200 shares. Horizon Financial Consultants Private 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 Debojyoti Banerjee, Sangita Debnath and Mina Debnath. The promoter holding in the company currently stands at 88.74%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 65.35%.
   
• The fresh issue funds will be used by the company towards capex for setting up kiosks and police booths at strategic points. Part of the funds will also be allocated towards bridging working capital gaps.
   
• Horizon Management Private Ltd will be the lead manager to the issue, and MAS Services Ltd will be the registrar to the issue. The market maker for the issue is Horizon Financial Consultants Private Ltd.

The IPO of Veritaas Advertising Ltd will be listed on the SME IPO segment of the NSE.

Veritaas Advertising IPO – Key Dates

The SME IPO of Veritaas Advertising Ltd IPO opens on Monday, 13th May 2024 and closes on Wednesday, 15th May 2024. The Veritaas Advertising Ltd IPO bid date is from 13th May 2024 at 10.00 AM to 15th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 15th May 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 May 17th 2024, will be visible to investors under the ISIN Code – (INE0SRI01019). 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

Veritaas Advertising Ltd has already announced the market maker allocation at 37,200 shares as inventory for market making. Horizon Financial Consultants Private Ltd will be the market maker for the IPO. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors. The breakdown of the overall IPO of Veritaas Advertising Ltd in terms of allocation to various categories are captured below.

Data Source: Company RHP filed with SEBI

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹136,800 (1,200 x ₹114 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 2,400 shares and having a minimum lot value of ₹273,600. 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.

Financial highlights: Veritaas Advertising Ltd

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

Data Source: Company RHP filed with SEBI

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

• The revenues have grown 3-fold over FY21. That is robust growth in top line over the last two years. The profits have also grown, but remain quite low with the PAT margins at around 5.66%, which is quite low in this business.
   
• While net margins of the company have been subdued, that is the nature of the media buying and syndicating business where a lot of gains are back-ended. The return on equity (ROE) has grown to over 48.98% in the latest year, while FY23 ROA is at 8.27%.
   
• The asset turnover ratio or the sweating ratio has been above 2.20X in the latest year and that is a good sign that sales have picked up to cover the asset outlays. However, this sweating ratio also gets magnified by the robust levels of return on assets (ROA).

The company has latest year EPS of ₹2.27 and we have not included the weighted  average EPS, since the previous year data is not exactly comparable. The latest year earnings are being discounted by the IPO price of ₹114 per share at 50-51 times P/E ratio. That surely does not leave much of the valuation moat for the investors in the IPO, especially at such relatively steep valuations.

However, if we look at the 10-months EPS for FY24 is higher at ₹8.11, which translates into full year extrapolated EPS of ₹9.73 per share, which now makes the valuation relatively better at around 11-12 times P/E ratio. The company is into a business where there is intense competition and such a steep valuation is surely hard to justify. Investors need to take a hard look at projections and valuations before taking a call on investing in the IPO.