What’s on offer

Share Market Live

NSE

Updater Services’ IPO is a book built issue of Rs 640 crore comprising of a fresh issue of 1.33 crore shares aggregating to Rs 400 crore and offer for sale of 0.8 crore shares aggregating to Rs 240 crore. The issue opens for subscription today (Monday, September 25) and closes on Wednesday, September 27.

The price band for the issue has been set at Rs 280-300/share. The minimum lot size for an application is 50 shares and the minimum amount of investment by retail investors is Rs 15,000.

The minimum lot size investment for smaller non-institutional investors (NIIs) (application size of less than Rs 2 lakh) is 14 lots (700 shares) which amounts to Rs 2,10,000 and for large NIIs (application size between Rs 2 lakh to Rs 10 lakh) is 67 lots (3,350 shares) which amounts to Rs 10,05,000.

The allotments of shares is expected to take place on October 6, 2023 and the expected listing date is likely to be September 27, 2023.

Usage of IPO proceeds

Rs 400 crore raised through fresh issuance of shares is expected to be used towards repayment/prepayment of borrowing, funding working capital requirements and pursuing inorganic initiatives.

Quick look at Updater Services’ business

Updater Services is one of the largest integrated business services provider in the country and the second largest player in the integrated facility management business (IFM). The company is amongst the top 3 players in multiple high margin business support services segments (BSS).

Also, the company is a leading player in Sales Enablement segment and has some of the marquee names like Microsoft, Saint-Gobain, Hindustan Unilever, Vivo Mobile as its clients. The company is also a leader in Audit and Assurance where its key clients include names like P&G, ABFRL and Hershey. Updater Services is amongst the top 3 players in Employee Background verification business.

As far as new business are concerned, Updater Services has entered into large airport ground handling segment recently. It handled a total of 2,258 scheduled aircraft across five airports including the airports at Pune and Patna.

The company is in a clear transformation to high margin BSS segments from a low margin IFM business. BSS revenue contribution has gone up from sub 10 percent in FY20 to nearly 30 percent in FY23. Also, BSS segmental profit accounts for around 60 percent contribution in FY23.

Strong track record in acquisition space

Updater Services has a strong track record of multiple acquisition, integration and quick turn-around. The company has made highly capital efficient acquisition, a total of 4 acquisition in last 4 years through internal accruals/debt.

Matrix was acquired in FY20 when its revenue of Rs 76 crore and EBITDA of Rs 12 crore which has grown to around Rs 124 crore in revenue with EBITDA of Rs 33 crore in FY23. Denave was acquired in FY22 when its revenue was Rs 265 crore and EBITDA of Rs 17 crore which grew to around 364 crore in revenue and EBITDA Rs 34 crore in FY23.

The company has a low capex and high cash flow generation business – EBITDA to net cash flow from operations over 75 percent, from 145 crore adjusted EBITDA to over Rs 115 crore cash flow from operations in FY23. The business is high return on capital employed (ROCE) which stands at around 25 percent for FY23.

Updater Services Limited IPO: Adjusted P/E on post-money basis works out to 25x

The adjusted Price to Earnings (P/E) on post-money basis works out to 25x as against the perception of the P/E ratio being at over 44x at the upper end of the price band (Rs 300/share). The P/E of 44x of Updater Services appeared to be higher than the highest Industry P/E of 40.96x (the lowest being 19.74x) and the industry composite of 29.69x.

The restated profit for the FY23 was Rs 34.6 crore as per the RHP (D). If you consider the adjustments mentioned in the Red herring prospectus (RHP), the Employee Stock Option Expenses were Rs 3.9 crore (J). Fair value changes in liability payable/paid to promoters of acquired subsidiary were Rs 41.36 crore (K).

Liability payable to promoters of acquired subsidiary no longer required to be written back (L) is nil. In terms of valuation, the pre-money valuation works out to Rs 1,600 crore while the post-money valuation works out to Rs 2,000 crore. The adjusted PAT (D+J+K-L) works out to Rs 79.9 crore.

The adjusted P/E on post-money basis works out to 25x. If the adjustments made on account of the fair value changes are taken into consideration then the adjusted EBITDA will change and the adjusted value of the P/E will work out to be lower (than what can be seen due to Indian Accounting Standards (INDAS)).

(Edited by : Keshav Singh Chundawat)