What you must know about Sahana Systems IPO

Sahana Systems Ltd, is an SME IPO on the NSE which is opening for subscription on 31st May 2023. The company, Sahana Systems Ltd, was incorporated in the year 2020 and it is engaged in the business of offering IT-related services. It covers the entire gamut of IT related services including web app development, mobile app development, artificial intelligence / machine learning development (AI & ML), Chatbot development, and product prototyping. It also specializes in user interface and in UI design. It caters to user interfaces as well as user experience.

Sahana is a registered start-up recognized by the Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry. This is valid for 10 years and entitles the company to a host of privileges including exemption from angel tax. The funds raised through the fresh issue portion will be used by the company to fund its installation of EV charging stations and for meeting its working capital requirements.  

Key terms of the SME IPO of Sahana Systems Ltd

Here are some of the highlights of the Sahana Systems Ltd IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 31st May 2023 and closes for subscription on 02nd June 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and the issue price for the fresh issue portion has been set in the range of ₹132 to ₹135 per share. It will be a book built issue wherein the IPO price will be discovered through the process of book building.
   
• The company will issue a total of 24.25 lakh shares as part of the IPO. At the upper band of ₹135 per share the total fresh issue of shares amounts to ₹32.74 crore.
   
• There is no offer for sale portion in this IPO. The entire fresh issue represents the full size of the SME IPO in this case. While the fresh issue is EPS and equity dilutive, the offer for sale component would not have been dilutive as it is just transfer of ownership.
   
• The company has allocated 10% of the issue size for the QIB investors, at least 45% for retail investors and minimum 45% for the HNI / NII investors. The allocation model can be captured in the table as under.
• The minimum lot size for the IPO investment will be 1,000 shares. Thus, retail investors can invest a minimum of ₹135,000 (1,000 x ₹135 per share at the upper band of the range) 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 2,000 shares and having a minimum lot value of ₹270,000 at the upper end of the price band at ₹135 per share. There is no upper limit on what the HNI / NII investors can apply for. There are no such prescribed limits for qualified institutional buyers (QIBs).
   
• Like every SME IPO, this issue also has a marketing making portion with a market maker portion allocation of 125,000 shares. Rikhav Securities will act as the market maker to the issue providing two-way quotes to ensure liquidity on the counter.
   
• The company has been promoted by Pratik Kakadia and the promoter stake in the company stands currently at 9.25%. Post the IPO, being a fresh issue of shares, the promoter stake will be get diluted proportionately to 62.88%.

While Unistone Capital Private Limited and Interactive Financial Services Ltd will be the lead manager to the issue, Purva Share Registry India Private Limited will be the registrar to the issue.

Key dates to be aware of in the Sahana Systems Ltd IPO (SME)

The SME IPO of Sahana Systems Ltd IPO opens on Wednesday, May 31st, 2023 and closes on Friday, June 02nd, 2023. The Sahana Systems Ltd IPO bid date is from May 31st, 2023 10.00 AM to June 02nd, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is the 02nd of June 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 Sahana Systems Ltd

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

Data Source: Company DRHP filed with SEBI

The profit margins have been fairly low and the sales growth has been quite erratic. However, the company has an established model with a matured market, but at the same time the competition from the scores of mom and pop shops cannot be ruled out. However, investors must remember that this is a traditionally low margin business. That could be an overhang on valuations. On the positive side, the company has seen good traction in profits in the last three years, which hints at good execution. Also, the company has high levels of ROE and ROCE and low on debt. The IPO is a good bet for investors with a higher risk appetite and a longer waiting appetite.