Quicktouch Technologies vs Retina Paints: Which SME IPO should you subscribe?

The two SME initial public offerings that have recently opened their subscriptions for investors are Quicktouch Technologies and Retina Paints. A SME IPO of 1,530,000 equity shares with a face value of Rs. 10 and a total value of up to Rs. 9.33 Crores is Quicktouch Technologies. The IPO began on April 18, 2023, and will end on April 21, 2023. The offering is priced at ₹61 per share. Retina Paints’ IPO, on the other hand, is a SME IPO with 3,700,000 equity shares with a face value of ₹10 totalling up to ₹11.10 Crores. The IPO begins on April 19, 2023, and will end on April 24, 2023. The offering is priced at ₹30 per share. 

During its Day 1 of subscription, Retina Paints IPO subscribed 0.98 times.  In terms of retail and NII subscriptions, the public offering received 0.21 and 1.74 times, respectively. Whereas during its Day 2 of subscription, Quicktouch Technologies IPO was subscribed 2.82 times. The public issue subscribed 3.01 times in the retail category, 2.64 times in other category. Comparing these two SME IPOs, Krishna Raghavan, Founder, UnlistedKart has listed out the pros and cons and has shared his subscription strategy with Livemint.

Quicktouch Technologies Ltd

Pros:

Strong Financials: Quicktouch Technologies has shown steady growth in its financials over the years, with a low PE ratio and phenomenal growth in FY22 and FY23.

Experienced Promoters: The company is led by Gaurav and Madhu Jindal, who have significant experience in the IT industry.

In-Demand Services: Quicktouch Technologies offers software IT solutions, consulting services, and IT product/software development services, which are all in high demand.

Retail Allocation: The company has allocated 50% of its IPO size to retail investors, which provides an opportunity for smaller investors to participate in the IPO.

Cons:

Limited Track Record: Quicktouch Technologies was incorporated in 2013, which means it has a relatively limited track record compared to some of its competitors.

Competitive Industry: The IT industry is highly competitive, and Quicktouch Technologies faces stiff competition from well-established players.

Growth Potential: While Quicktouch Technologies has shown strong growth in recent years, there are concerns that this growth may slow down in the future.

Performance

Based on the information provided, Quicktouch Technologies Ltd. appears to be well-positioned to take advantage of the booming education ERP market in India. With the Indian government’s emphasis on education and e-learning advancements, the company is likely to experience continued growth in the coming years.

The fact that the company’s top 10 customers contributed less than 63% of revenue from operations is a positive sign, indicating that the company is not heavily reliant on a few customers. This diversification can help mitigate the risk of revenue loss in case of any adverse events affecting one or a few customers.

Additionally, the impressive revenue growth of 857.22% in 2022 from Rs. 265.89 lakh in 2020 is a positive indicator of the company’s financial performance. This growth rate indicates that the company is making significant strides in its operations and is likely to attract more investors.

Overall, Quicktouch Technologies Ltd.’s financial performance appears to be on an upward trend, and the booming education ERP market in India can provide a favorable environment for the company’s future growth.

Whether to subscribe or not?

Investors should consider Quicktouch Technologies’ financials and the competitive landscape of the IT industry before deciding to invest in the IPO. While the company has shown steady growth and has experienced promoters, the limited track record and competitive industry are factors to consider. Furthermore, the concerns about potential growth slowdown may also be a cause for concern.

Retina Paints Ltd

Retina Paints is a company that specializes in the manufacturing of decorative paints and sells its products in the Business to Business (B2B) category. It has its dealers spread across various territories in the states of Telangana and Andhra Pradesh and is looking for expansion all over South India. The company has a few strengths and weaknesses that can be highlighted.

Pros of Retina Paints IPO

Sells products in B2B category: Retina Paints imports raw materials from outside India and serves the states of Telangana and Andhra Pradesh. The company is looking to expand its products through the region of all over the South India. The company sustained business even during the pandemic and made exponential gains in the market.

Double Quality Checks: Retina Paints is dedicated to the quality of its products, processes, and input raw material. It adheres to quality standards as prescribed by its customers to meet the desired requirement; hence it gets repetitive orders from its buyers. Delivering quality products on time is one of its prime objectives. The ability to consistently deliver high-quality products to customers is critical to its business.

Provides high quality with local prices: The company provides products with high quality compared to the prices it sells them at. The quality is checked twice before selling them to the dealers. It gives importance to the quality much more because it is interested in selling the products with international quality and it tries to reduce its wastages and faulty products by keeping such quality checks while manufacturing the same.

Cons of Retina Paints IPO

No long-term supply agreements with vendors/suppliers: The company does not have written agreements with its vendors/suppliers and it operates on a purchase order system. In the absence of any such formal contract with its vendors/suppliers, it is exposed to the risks of irregular supplies or no supplies at all, or delayed supplies, or price variation which would materially affect its results of operations.

Business substantially dependent on key customers: The company derives a significant portion of its revenues from a limited number of customers that operate in the paint industry. In the event that any one or more customers cease to continue doing business with it, its business may be adversely affected. The loss of such customers may be caused mainly because of competition and technological advancements. 

While it is constantly striving to increase its customer base and reduce dependence on any particular customer, there is no assurance that it will be able to broaden its customer base in any future periods, or that its business or results of operations will not be adversely affected by a reduction in demand or cessation of its relationship with any of its major customers.

Highly competitive business: The Indian decorative paint industry has historically been dominated by four major entities that had an aggregate market share of the market, as the industry presents significant entry barriers. As a result, to remain competitive in its markets, it must continuously strive to manufacture differentiated products, expand its distribution network, enhance its brand and improve its operating efficiencies.

Performance

RPL’s financial performance for the last three fiscals has been average, with a turnover/net profit of Rs. 6.81 cr./Rs. 0.05 cr. (FY20), Rs. 6.86 cr./Rs. 0.05 cr. (FY21), and Rs. 6.47 cr./Rs. 0.11 cr. (FY22). However, the sudden boost in the bottom line on declined profits for FY22 raises eyebrows. 

For the first eight months of FY23, the company earned a net profit of Rs. 0.40 cr. on a turnover of Rs. 5.34 cr., which is even more surprising. It appears to pave the way for fancy pricing of the IPO, and some window dressing is done with a boost in other income.

Whether to subscribe or not?

Considering the pros and cons and the financial performance of RPL, it appears that the issue is priced at a high P/E ratio, discounting all near-term positives. Moreover, the sudden boost in the bottom line on declined profits for FY22 raises concerns. 

However, the company has introduced tinting machines, has a wide range of water-based paints, and plans to expand to other states soon. If one believes that RPL will do much better going forward with its expansion plans and enhancement in its product portfolio, one can subscribe to the IPO. However, it is essential to do thorough research and analysis before investing.