Widely read:
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 | 5925 |
| Operating profit (Rs cr) | 8.4 | 239 | 236 | 285 | 201 |
| Consolidared PAT (Rs cr) | -2.7 | 129 | 123 | 182 | 130 |
| Net worth (Rs cr) | 773 | 700 | 575 | 394 | |
| Total debt (Rs cr) | 1410 | 1082 | 886 | 489 | |
| PAT is profit after tax | |||||
Key ratios
| Ratios | 3Y average (%) | TTM Sept 2023 | FY23 | FY22 | FY21 |
|---|---|---|---|---|---|
| ROE (%) | 32.2 | 18 | 19.3 | 37.6 | 39.7 |
| ROCE (%) | 19.3 | 13.1 | 14.2 | 20.1 | 23.5 |
| EBIT margin (%) | 3 | 2.4 | 2.5 | 3.1 | 3.4 |
| Debt-to-equity | 1.8 | 1.3 | 2 | 2.2 | |
|
ROE is return on equity ROCE is return on capital employed EBIT is earnings before interest and taxes |
|||||
Risk report
Company and business
-
Are Rashi Peripherals' earnings before tax more than Rs 50 crore in the last 12 months?
Yes. Its trailing 12-month profit before tax was Rs 178 crore. -
Will Rashi Peripherals be able to scale up its business?
Yes. Rising demand for tech products, such as gaming computers, storage devices, etc., should help it scale up. -
Does Rashi Peripherals have recognisable brands with client stickiness?
Yes. It derived 78 per cent of its revenue (in the six months ending September 30, 2023) from the brands associated with it for over 10 years. -
Does the company have a credible moat?
No. It operates in a highly competitive market.
Management
-
Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. The promoters' stake will be 63.4 per cent post IPO. -
Do the top three managers have more than 15 years of combined leadership at Rashi Peripherals?
Yes. Krishna Kumar Choudhary, the promoter, chairman and whole-time director, has been associated with the company since 1997. -
Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes. No information to suggest otherwise. -
Is the company's accounting policy stable?
Yes. No information to suggest otherwise. -
Is Rashi Peripherals free of promoter pledging of its shares?
Yes. It is free of promoter pledging their shares.
Financials
-
Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
No. Its three-year average ROE and ROCE are 32 and 19 per cent, respectively. Its TTM ROE and ROCE are 18 and 13 per cent, respectively. -
Was the company's operating cash flow positive during the last three years?
No. It has not generated positive cash flows in any of the last three financial years. -
Is the company's net debt-to-equity ratio less than one?
No. Its net debt-to-equity ratio stood at 1.8 times as of September 30, 2023. -
Is Rashi Peripherals free from reliance on huge working capital for day-to-day affairs?
No. The distribution business requires a high amount of capital to maintain a sufficient inventory. In addition, it has to purchase goods from its clients before customers pay. Notably, around 37 per cent of the net proceeds will be used for working capital requirements. -
Can the company run its business without relying on external funding in the next three years?
No. It has not generated positive cash flows in the last three financial years. Moreover, it has a low cash balance (0.5 per cent as a percentage of total assets as of September 30, 2023). -
Is Rashi Peripherals free from meaningful contingent liabilities?
No. Contingent liabilities as a percentage of equity stood at 76.7 per cent as of September 30, 2023.
Valuations
-
Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
No. The stock will offer a 6.9 per cent operating earnings yield on its enterprise value. -
Is the stock's price-to-earnings less than its peers' median level?
No. The stock is valued at a price-to-earnings ratio of 15.9 times compared to its peer's level of 12.9 times. -
Is the stock's price-to-book value less than its peers' average level?
Yes. The stock is valued at a price-to-book ratio of 1.5 times compared to its peer's level of 2.3 times.
Disclaimer: This is not a stock recommendation. Do your due diligence before investing.
Also read: Another IPO frenzy begins
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