Updater Services IPO opens today: Should you subscribe to the issue?

The Rs 640 crore-initial public offering (IPO) of Updater Services opened for bidding on today, that is Monday, September 25 and the bidding for the issue will conclude on Wednesday, September 27. The company is selling its shares in the range of Rs 280-300 apiece with a lot size of 50 equity shares and its multiples thereon.

Incorporated in 1990, Updater Services offers facility management services and business support services and operates in the business-to-business (B2B) services space, which are broadly classified into the two following segments- IFM and other services segment and BSS Segment.

The issue includes a fresh share sale of Rs 400 crore, while its 80 lakh equity shares aggregating to Rs 240 crore are offered via offer-for-sale (OFS) routeby promoter Tangi Facility Solutions and selling investors India Business Excellence Fund.

Proceeds from the fresh issue shall be utilized towards repayment and/or prepayment of borrowings ; funding the working capital requirements; pursuing inorganic initiatives; and general corporate purposes.

The company operated on an EBITDA margin of 4.75 per cent and PAT margin of 1.64 per cent for year ended FY23, generating an ROE and ROCE of 9.4 per cent and 14.17 per cent, respectively for FY23. The company is asking for a PE multiple of 44.77 times at which the issue seems to be a little expensive, said Sushil Finance in its IPO note.

"However, improvement was seen in the topline but bottomline was fluctuating through FY21-23. At the same time, trade receivables of the company doubled which raises a concern. Outsourcing various non-core business activities by companies to third parties is rapidly evolving. Also, it is planning to expand its global presence. We are neutral on the company," it added.

IFM & other services segment includes production support services, engineering services, soft services, washroom and feminine hygiene, warehouse management, general staffing among others. It offers BSS segment services through the subsidiary named Matrix.

Updater Services served 2,797 customers across various sectors at domestic and global levels as of June 30, 2023. Its client base includes Procter & Gamble Home Products (P&G), Microsoft, Aditya Birla Fashion and Retail (ABFRL), Hyundai Motor India, Saint-Gobain India. It has a widespread network of 4,331 locations via 116 offices situated in India and 13 offices situated overseas.

Through the marquee clients, past acquisitions and operational efficiency, the company has successfully created a niche place in services. It has aimed for high margin through value-added services with the support of latest technology in its portfolio, said Anand Rathi Research. "On the valuation front, we believe that it is fairly priced and recommend a subscribe' rating for the issue."

Updater Services raised Rs 288 crore from 18 anchor investors by allocation of 96 lakh equity shares at a price of Rs 300 per share on Friday. Anchor books included marquee names like Societe Generale, Copthall Mauritius Investment, Citigroup Global, BNP Paribas Arbitrage - ODI and Nomura Singapore.

With the unique business model that caters to niche markets and strong industry growth for IFM and BSS sectors with CAGR growth of 17 per cent and 15 per cent, respectively from FY23 to FY28, the company is poised to grow organically under this segment, said SBI Capital Markets.

"The company is also looking for inorganic growth through the strategic acquisition of a high-margin business that will supplement the company’s operations, The company is valued at an FY23 PE multiple of 57.8 times at the upper price band on post-issue capital," it said in its IPO note.

Updater Services clocked a net profit of Rs 34.61 crore for the year ended on March 31, 2023 compared to a net profit of Rs 57.37 crore in the year ago. Similarly, its revenue came in at Rs Rs 2,112.09 crore in the financial year 2022-23, against a revenue of Rs 1,497.89 crore for the financial year 21-22.

75 per cent of the offer of Updater Services shall be reserved for the qualified institutional bidders, while non-institutional investors (NIIs) will get 15 per cent of the allocation. Retail investors will get the remaining 10 per cent of the issue.

Motilal Oswal Investment Advisors, IIFL Securities, and SBI Capital Markets are the book-running lead managers for the issue, while Link Intime India has been appointed as the registrar to the issue. Shares of the company will be listed on both BSE and NSE.
 

Disclaimer: Business Today provides stock market news for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.

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