IPO Size: Rs. 277 cr 

• Entirely Offer For Sale (OFS) - 2/3^rd by Softbank, classified as promoter (29% stake to nearly halve to 16%) and balance by promoter Snapdeal, now called AceVector (38% to reduce to 32%). Total promoter holding of 77% will drop to 59% post IPO.    

Price band: Rs. 102-108 per share

• 75% reserved for institutions and only 10% for retail, as absolute profits low and monetary assets account for most of the net worth

M cap: Rs. 1,106 cr, implying 25% dilution

IPO Date: Tue 6^th Aug to Thu 8^th Aug 2024, Listing Tue 13^th Aug 2024

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

E-commerce SaaS Company       

Unicommerce Esolutions is India’s largest e-commerce enablement software-as-a-service (SaaS) platform, providing transaction processing or end-to-end post-purchase operations management services such as warehouse and inventory management, multi-channel order management, omni-channel retail management, shipment tracking etc.

Asset-Light Tech Business

In last 12 years of existence, company has raised only Rs. 42 cr primary capital (Rs.6 cr in Dec 2012, Rs.35 cr in Apr 2015), and yet clocked Rs. 13 cr PAT in FY24.

On a net worth of Rs. 69 cr, as of 31.3.24, cash and equivalents stood at Rs. 63 cr, implying an asset light business with high cash generation.

Small, Growing Financials

On a low base of Rs. 40 cr in FY21, topline grew at 37% CAGR in past 3 fiscals, to Rs. 104 cr in FY24. Despite such a small topline, it ranks #1 among e-commerce SaaS players. If the market opportunity was as large as Rs. 2,100 cr in 2023, company’s topline implies <5% market share, indicating stiff competition.

Moreover, while orders processed rose 36% YoY in FY24, topline growth was restricted to 15% YoY, as many orders came under minimum base payment.

EBITDA, adjusted for interest income and ESOP cost, stood at Rs. 16 cr in FY24, translating into 15% margin, up from 9% in FY21, as operating leverage kicked-in.

While it was the only profitable company among top 5 competitors in FY23, PAT of Rs. 6.5 cr in FY23 rose to Rs. 13 cr in FY24. While FY24 PAT doubled YoY, the year before, i.e. FY23 PAT grew at just 8% YoY despite 53% YoY jump in FY23 revenue. Thus, high profit growth of FY24 may not be extrapolated. FY24 net margin stood at 13%, with an EPS of Rs. 1.16, on a small equity of Rs. 10.24 cr.

Valuation offers No Margin of Safety

Estimating about 40% YoY profit growth leads to FY25E PAT of Rs. 18 cr. This translates into a current year PE multiple of 61x, which appears high on an absolute basis, more so due to the small size of business. While there are no direct peers, listed SaaS players operating in travel and spend management domains can be used for broad benchmarking:

• Rategain had a topline of ~Rs. 1,000 cr in FY24, with 15% PAT margin. It is trading at FY25E PE multiple of 47x
• Fintech SaaS player Zaggle, with Rs. 1,000 cr and Rs.68 cr run-rate for revenue and PAT respectively, has a m cap of Rs. 4,000 cr, implying FY25E PE multiple of 59x

Thus, Unicommerce’s valuation is higher than larger listed SaaS companies, offering nil margin of safety, forget any discount for being a primary market offering.

Some Closing Thoughts

• Why are promoters AceVector and Softbank on a selling spree? AceVector has sold 10.4% stake in Dec 2023 (at Rs. 65.42 per share), 3.4% in May 2024 (at Rs. 95.95 per share) and now looking at another 9%. This implies cashing out of 22% stake, within a span of 9 months! Even Softbank sold 3+% stake in Jan 2024 for Rs. 25 cr and is now trimming 16% holding via OFS. Combined, AceVector and Softbank are looking to reduce a sizeable 41% stake in a span of 9 months! 
• IPO price is 12.5% higher than the previous secondary sale, undertaken barely 2.5 months ago. In absence of Q1FY25 financials, we are unable to gauge this premium, but remain apprehensive due to slowing e-commerce industry sales in the past few months.
• Company gave a sizeable portion of its surplus cash as loan to promoter AceVector in both FY24 and FY23 and reversed the same at year end. Inter-corporate debt is not viewed favourably and can be a potential corporate governance issue going forward.