eDynamics Solutions IPO

eDynamics Solutions (ESL) is the latest in the line of companies that are coming up with IPOs. It will enter the primary market on 10 June 2013 and will close on 12 June 2013. The company has filed a DRHP on the BSE SME platform to raise funds for expansion.

ESL will issue 62.4 lakh fresh equity shares of face value Rs 10 each share. This will be a fixed price issue at Rs 25 per share, which aggregates to Rs 15.6 crore. The offer comprises 3.24 lakh equity shares reserved for market makers and the remaining 59.16 lakh shares are the net public issue. The minimum bid lot size is 6000 equity shares. The lead manager for the said offer is Guiness Corporate Advisors.

The Delhi-based company has business interests in the e-commerce domain. It is primarily engaged in online trading and retailing of a range of products, which includes groceries, fabrics, furnishings, electronics, computers and their accessories. In addition, the company also reaches retailers through its sales agent.

The net proceeds of the issue will be utilised to augment the working capital requirements, to set up retail houses and for brand building activities. The company proposes to employ Rs 7 crore to pay as advance to manufacturers/wholesalers for the products it sells. To set up retail store modules, it has a proposed investment of Rs 3.9 crore. ESL has plans to establish 30 new stores in cities like Delhi (NCR), Chandigarh, Mumbai, Kolkata, Chennai, Bengaluru, Ahmedabad, Pune and Hyderabad. Moreover, an amount of Rs 2 crore will be used towards retaining and developing its customer base and for national-level advertising of its brand.

ESL has performed up to par in the last fiscal 2012. Its income from operations posted 1441% growth to Rs 265 lakh, which constitutes sales & receipts and interest income. The revenue grew primarily due to huge increase in products sold by the company. Due to heavy sales of its products in the said period, the cost of goods sold also increased heavily by Rs 245 lakh, which stood at ‘zero' in FY11. However, the company has reduced its other administrative and selling expenses by 30%. The increased operations have boosted the EBITDA by 850% to Rs 6.08 lakh in FY12. Hence, the bottomline grew to Rs 4.13 lakh in FY12 from Rs 44,000 in FY11.

If we consider ESL's share price, the company has quoted Rs 25 for one share, trading at an FY12 PE 934.3x of its EPS Rs 0.02. Its listed peer Redington India is trading at a trailing 12-month PE of 9.97x of EPS Rs 8.03.

The Indian e-commerce sector has boomed in the last few years and is also expected to reach new heights in the coming four to five years. But there is tough competition from other market participants as there is practically no entry barrier. Though ESL has a good network distribution and is also exploring its operational area by the proposed expansion plan, it will face tough competition from manufacturers of hardware & software solutions as they produce and sell their products and has a well established set of customers in the market, whereas ESL does not have a brand recognition in the customers’ mind. Certainly, the quoted issue price is too expensive considering that of its peer companies. Thus, ESL may not be a value creator for retail investors and we suggest that investors avoid this offer.