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Veranda IPO opens: Should you Apply or Avoid?

March 29, 2022 02:18 PM

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The education services player is eyeing to raise Rs 200 crore via its initial public offering (IPO), which is entirely a fresh issue.

Veranda Learning IPO (Initial Public Offering) opened for subscription today and will remain open for bidding till March 31, 2022. The education services player is eyeing to raise Rs 200 crore via its initial public offering (IPO), which is entirely a fresh issue.

Veranda IPO: Should You Subscribe?

Analysts are skeptical over the issue following its muted financials, negative bottomline, pricey valuations, tepid growth, and high competition in the education sector.

“The IPO is aggressively priced and hardly leaves anything meaningful on the table for investors in the medium-term perspective,” Saiyed added. “All positives are captured in its valuation and valuation is not favourable for investors.”

“Although the company’s business model is technology-driven, asset-light, and scalable with proven track record of promoters along with a result-oriented method of teaching with 360 degree approach and diversified course offerings and delivery channels, but looking after the financials of the company and its valuations, we recommend ‘Avoid’ on the issue,” said brokerage firm Hem Securities.

Veranda Learning IPO opens today: Here’s what brokerages say

The maiden public offer of Veranda Learning Solutions kicks off for subscription on Tuesday. The education services player is eyeing to raise Rs 200 crore via its initial public offering (IPO), which is entirely a fresh issue.

The company offers online and offline coaching services for courses such as UPSC, CA, banking, and government exams to students, graduates, professionals, and corporate employees.

It will be the last issue of the current financial year as the Veranda IPO closes for subscription on Thursday, March 31, 2022. It is the fifth issue of the calendar year 2022 after AGS Transact Technologies, Adani Wilmar, Vedant Fashions and Uma Exports.

The company will sell its shares in the price band of Rs 130-137 per share. Investors can bid for a minimum of 100 shares and then in the multiples of 100 thereof.

The issue is not tracked by many brokerages, thanks to its small size. However, those tracking the IPO mostly have an ‘avoid’ rating with a word of caution to investors.

Analysts are skeptical over the issue following its muted financials, negative bottomline, pricey valuations, tepid growth and high competition in the education sector.

On FY22 annualized financials, the IPO is at 25x market cap/sales for a loss-making company with a low track which looks expensive and the market is highly competitive, said Arafat Saiyed, Research Analyst, Reliance Securities.

Also Read :  Veranda IPO: Dates, Issue Price, GMP, Subscription, Share Analysis and Allotment

The net proceeds from the issue will be utilized for repaying debts, payment of acquisition cost or loans related to Edureka, and growth initiatives, the company said in its DRHP.

The company has reserved up to 75 per cent of the total offer for qualified institutional buyers (QIBs), whereas non-institutional investors (NIIs) will get 15 per cent allocation. Retail bidders will get the remaining 10 per cent allocation.

Considering the FY21 and FY22 (annualized) revenue of Rs 2.54 crore and Rs 16.46 crore on a post issue basis, Veranda Solutions is going to list at a Mcap/sales of ratio of 300.84x and 24.71x, respectively, with a market cap of Rs 764.1 crore, said Marwadi Financial Services in its pre-IPO note.

“We assign ‘Avoid’ rating to this IPO as the company is a loss-making company with negative operating cash flows and is available at expensive valuation on an absolute basis,” said the brokerage.

The Chennai-based Veranda Learning was incorporated in 2018 but kicked off its operation from December 2020 through its four wholly-owned subsidiaries, with no comparable companies in India that engage in a similar business.

The company plans to use opportunistic and strategic acquisitions to rapidly expand offerings and customer reach. It also plans to expand its presence in its existing and new markets, said Religare Broking.

However, the financial performance of the company is weak as it is consistently incurring losses, said the brokerage firm in its pre-IPO note.

For the financial year 2020-21, the company reported net loss of Rs 8.3 crore with a total revenue of Rs 2.54 crore. The net loss widened to Rs 18.26 crore despite a rise in revenue to Rs 15.66 crore for the period ended September 30, 2021.

“Although the company’s business model is technology driven, asset light and scalable with proven track record of promoters along with result oriented method of teaching with 360 degree approach and diversified course offerings and delivery channels, but looking after the financials of the company and its valuations, we recommend ‘Avoid’ on the issue,” said brokerage firm Hem Securities.

Vijay Singhania, Chairman, TradeSmart, said Veranda Learning Solutions will be keenly watched as it is an ed-tech venture offering training programs for competitive exams preparation in India at multiple levels and segments.

“Markets will be keenly watching investor interest in this new-age company and bidding from retail and institutional buyers will help revive the sentiments of the primary market,” added Singhania with no recommendation for the issue.

Also Read: Veranda Learning Solutions IPO to open on March 29, price band at Rs 130-137 per share

Veranda has appointed Systematix Corporate Services as the lead manager to the issue, whereas KFin Technologies is the registrar to the issue. The company is likely to get listed on BSE and NSE from April 7, 2022.

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