IPO Size: Rs. 640 cr 

• Rs. 400 cr fresh issue, for repaying Rs. 133 cr of total Rs. 177 cr debt, working capital Rs. 115 cr, and acquisitions Rs. 80 cr.
• Rs. 240 cr offer for sale (OFS) equally by Motilal Oswal PE’s India Business Excellence Fund (16.9% to drop to 7.5%) and promoter (80.6% to reduce to 58.5%)

Price band: Rs. 280-300 per share

• 75% issue reserved for institutions, only 10% for retail as tangible assets are low

M cap: Rs. 2,001 cr, implying 32% dilution

IPO Date: Mon 25^th Sep to Wed 27^th 2023, Listing Mon 9^th Oct 2023

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

Business Service Provider

Updater Services operates 2 business divisions:

1. Integrated Facilities Management (70% of revenue): services such as house-keeping, pest control, production support, warehouse management, general staffing, institutional catering etc.
2. Business Support Services (30% of revenue, higher margin vis-à-vis Integrated Facilities Management): sales enablement services, dealer audit and employee background verification, airport ground handling, courier and mail room management services etc.  

Company’s business operations are manpower-heavy and it has over 65,000 employees. Managing such a large workforce for the size and nature of business is not easy. And a bigger challenge is huge attrition – average 70% in past 3 years! This is just baffling, to say the least.  

Acquisition-Led Growth

Company’s revenue has grown at 17% CAGR between FY20 to FY23 to Rs. 2,100 cr, mainly supported by the inorganic route. Having acquired 7 businesses in last 7 years, it has expanded service offerings and thereby strengthen margins due to operating leverage. However, margins still remain slim - 7% adjusted EBITDA margin and 3% net margin. FY23 adjusted EBITDA stood at Rs. 151 cr. PAT was reported at Rs. 48 cr, with an EPS at Rs. 8.5, due to higher amortization of intangibles on acquisitions, as well as a larger liability payable towards acquisition price. These items are not one-offs and may continue in the coming years, with varying amount.

Fresh Issue ‘Structured’ for OFS

Of Rs. 400 cr fresh issue, Rs. 133 cr is debt repayment, which looks unnecessary as most of company’s borrowings are short term in nature and it is almost net debt free (gross debt as of 31.3.23 is Rs. 177 cr and cash equivalents of Rs. 169 cr). Other objects like working capital can also be met through internal accruals. Thus, fresh issue portion looks structured to ‘facilitate’ the offer for sale for the PE investor and promoter.

Overpriced IPO

Based on an optimistic estimated EPS of Rs. 12 for FY24E, current year PE multiple stands at 26x, which is expensive, as closest comparable peer SIS is ruling at PE multiples of 16x. Updater’s low business margins limits scope of increase in profits when topline were to grow. Besides, industry is commoditised and highly-competitive, with low entry barriers.