IPO Size: Rs. 388 cr

• 85% of issue is offer for sale (OFS) – 70% by PE Ascent (34% stake to reduce to 10%) and 30% by the Promoter (66% stake to drop to 53%)
• Fresh issue component is only Rs. 60 cr: Rs. 25 cr for capex, Rs. 20 cr for working cap.

Price band: Rs. 94-99 per share

Mcap: Rs. 1,062 cr, implying 37% dilution

IPO Date: Fri 23^rd Dec to Tue 27^th Dec 2022, Listing: Wed 4^th Jan 2023

• IPO timing seems like a compulsion at promoter end: 36.45 lakh shares (worth Rs. 36 cr at upper price band) transferred by Ascent to promoters, free-of-cost in Feb 2022, will flow back to Ascent, if IPO not consummated before 31.12.22.

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Retail Cash Logistics Company

Promoted by an ex-Indian Army official Col David, company provides cash pick-up/delivery and network currency management services to banks, retail companies, e-commerce, petrol pumps, with tier 3 towns accounting for 2/3^rd of Rs. 286 cr revenue in FY22. As touch points increased from 42k (31.3.21) to 55k (30.6.22), revenue jumped to Rs. 84 cr in Q1FY23, with EBITDA margins healthy at 26%, as operating leverage is kicked in, on fixed costs being covered. Q1FY23 PAT rose to Rs. 15 cr from Rs. 38 cr in FY22, leading to an EPS of Rs. 1.5 over Rs. 3.8 respectively. Being asset light, 27% RoE was reported for FY22.

Fresh issue looks structured

Issue object is mainly OFS for Ascent, invested since Jan 2015. If fund need was important, what is the financial logic of paying Rs. 12 cr dividend between 1.7.22 to 17.12.22 and Rs. 22 cr for FY22 (DRHP filed in Oct 2021)? Even post the dividend payments, company has Rs. 40 cr surplus cash.

Small Size of Operations

While the retail cash management is expected to grow in double digits, the absolute industry size is small – FY21 size of Rs. 680 cr estimated to grow to Rs. 2,040 cr by FY27E. This explains small scale of company’s operations, as it anyways does not undertake ATM cash management, unlike listed peers CMS Info and AGS Transact. For comparison, CMS’ quarterly revenue of Rs. 500 cr is more than Radiant’s annual revenue!

Unattractive Pricing

CMS has 4,000+ cash vans, offers ATM cash management (which is a larger industry opportunity) and also technology-backed managed services like back-end ATM monitoring. Radiant’s nature of work is more on operational, with limited technology play. Besides larger size, CMS’ EBITDA margin of 28.5% is also higher than Radiant’s 26.0%. Radiant’s asset light business model makes its RoE higher, but it has only 739 vans, which does not justify a PE multiple of 16x (Q1FY23 annualised) – the same as that of CMS. Besides a lower multiple for smaller size, IPOs are generally priced 15-20% lower than listed stocks, to leave some ‘money on the table’, which is clearly missing here.

Eye-popping Related Party Transactions

Group company Radiant Protection Force Private Limited (RPFPL), wholly owned by the promoter, entered into several important transactions with Radiant Cash:  

1. Hiring of gurads and leasing cash vans worth Rs. 49 cr, accounting for a material 20% of Radiant Cash’s expenses for FY22 and 100% of RPFPL’s revenue for FY22.
2. RPFPL had gross block of cash vans of Rs. 4.6 cr (in total fixed assets of Rs. 5 cr), while its annual cash van contract revenue is at Rs. 16.77 cr in FY22 – annual lease being 4x of capital cost does not add up, as manpower cost is separately billed.
3. Corporate office property sub-leased by Radiant Cash from RPFPL, which in turn has leased the property from another individual. Why no direct lease to company/ purpose of sub-lease via group company?

Complete respect for ex-army men and team, but the above series of transactions raises questions around coprorate governance, especially when public market investors come in post IPO.