IPO: Rashi Peripherals

Rashi Peripherals, a leading tech product distributor, launched its IPO (initial public offering) on February 7, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision. In a nutshell Quality: Its three-year average return on equity (ROE) and return on capital employed (ROCE) are 32 and 19 per cent, respectively. However, it failed to generate positive cash flows in each of the last three financial years. Growth: It grew its revenue by 26 per cent annually between FY21-FY23. However, PAT declined by 3 per cent annually in the same period. Also, its three-year average net margin stood at 2 per cent. Valuation: The stock will be priced at a P/E and P/B of 15.9 and 1.5 times, respectively, as compared to its peer's median (Redington) of 12.9 and 2.3 times. Overview: Growing demand for personal computers and other tech peripherals should drive growth. However, intense competition and top clients jumping ship might pose threats. Also, high contingent liabilities are concerning. About the company Incorporated in 1989, Rashi Peripherals distributes tech products, such as CPUs, storage devices, fitness trackers, etc., across India for leading global tech brands. It covers around 680 locations in India. Strengths of Rashi Peripherals High market share. It has a market share of 47 per cent in GPU distribution and 45 per cent in CPU distribution in India. Long-lasting client relationships. In the six months ending September 30, 2023, it derived 78 per cent of its revenue from clients associated with the company for over 10 years. Notably, Asus has been with the company for over 25 years. Weaknesses of Rashi Peripherals Its business is closely tied to its clients' business health. For example, deterioration in the market reputation of any of its CPU-maker clients will significantly impact CPU demand. Customer stickiness. The number of non-retained customers has increased by 23 per cent annually during FY21-FY23. The tech distribution segment is highly competitive. IPO details Total IPO size (Rs cr) 600 Offer for sale (Rs cr) 0 Fresh issue (Rs cr) 600 Price band (Rs) 291 - 311 Subscription dates Feb 07-09, 2024 Purpose of issue Repayment of debt, working capital requirements and general corporate purposes. Post-IPO M-cap (Rs cr) 2049 Net worth (Rs cr) 1373 Promoter holding (%) 63.4 Price/earnings ratio (P/E) 15.9 Price/book ratio (P/B) 1.5 Financial history Key financials 2Y growth (% pa) TTM Sept 2023 FY23 FY22 FY21 Revenue (Rs cr) 26.3 9899 9454 9313 592