What you must know about Fonebox Retail IPO?

Tanushree Jaiswal Tanushree Jaiswal 19th January 2024 - 06:20 pm
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About the Fonebox Retail IPO

Fonebox Retail Ltd is a multi-brand retailer of smartphones and other related electronic accessories. Fonebox Retail Ltd represents a wide variety of the leading manufacturers of smart phones in the world; which include Apple Inc, Samsung, Vivo, Oppo, Realme, Redmi, LG, Micromax, and Motorola. Broadly, the company operates under the two brands; Fonebook and Fonebox. In addition, the company (Fonebox Retail Ltd) is also into the multi-brand retailing of other electronic and whitegoods products like laptops, washing machines, smart TVs, air conditioners, refrigerators, etc. It markets the products manufactured by TCL, Haier, Lloyd, Daikin, Voltas, Realme, and OnePlus. Fonebox Retail Ltd has also tied up with multiple financial lending institutions like Bajaj Finance, HDB Financial Services Ltd, HDFC Banka and IDFC First Bank Ltd to offer credit/EMI facilities to its customers.

With many of the upscale electronic products becoming very expensive, such purchase on EMI / Credit has become a lot more popular these days. As of late 2023, Fonebox Retail Ltd had a total of 153 stores located predominantly in the state of Gujarat. Of these, 40 retail stores are owned and also operated by Fonebox Retail Ltd  under the "COCO model". The other 113 stores are owned by the franchisee while it is operated by the company as per the "FOCO model". The reach of Fonebox Retail Ltd in terms of multi0-brand retail is spread across more than 20 cities in Gujarat. The company employs over 130 people on its rolls across various functions.

Key terms of the SME IPO of Fonebox Retail Ltd

Here are some of the highlights of the Fonebox Retail IPO on the SME segment of the National Stock Exchange (NSE).

  • The issue opens for subscription on 24th January 2024 and closes for subscription on 29th January 2024; both days inclusive.
     
  • The company has a face value of ₹10 per share and it is a book built issue. The price band for the book built issue has been set in the range of ₹66 to ₹70 per share. The final price of the IPO will be decided by book building within this price band.
     
  • The IPO of Fonebox Retail Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
     
  • As part of the fresh issue portion of the IPO, Fonebox Retail Ltd will issue a total of 29,10,000 shares (29.10 lakh shares), which at the upper band of the book building band of ₹70 per share aggregates to fresh fund raising of ₹20.37 crore.
     
  • Since there is no offer for sale (OFS) portion, the fresh issue size will also double up as the overall IPO size. Therefore, the overall IPO size will also comprise of the issue of 29,10,000 shares (29.10 lakh shares) which at the upper IPO band price of ₹70 per share will aggregate to overall IPO size of ₹20.37 crore.
     
  • Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 1,46,000 shares. The name of the market maker for the issue is yet to be announced.. The market maker provides two-way quotes to ensure liquidity on the counter and low basis costs, post listing.
     
  • The company has been promoted by Manishbhai Girishbhai Patel, Jigar Lallubhai Desai, Parth Lallubhai Desai, Jigneshkumar Dashrathlal Parekh And Mr. Amitkumar Gopalbhai Patel. The promoter holding in the company currently stands at 100.00%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 71.64%.
     
  • The fresh issue funds will be used by the company for meeting working capital expenses and for general corporate purposes. The issue expenses of this IPO will also be met out of this fund raising.
     
  • Beeline Capital Advisors Private Ltd will be the lead manager to the issue, and KFIN Technologies Ltd will be the registrar to the issue. The market maker for the issue is yet to be officially announced by the company.

IPO allocation and minimum lot size for investment

Fonebox Retail Ltd has already announced the market maker allocation at 1,46,000 shares as inventory for market making. The name of the market is yet to be announced by the company. The net offer (net of market maker allocation) will be divided between the QIB investors, retail investors and the HNI / NII investors in a pre-determined ratio as specified by the company and its investment bankers. The breakdown of the overall IPO of Fonebox Retail Ltd in terms of the allocation to various categories are captured in the table below.

Investor Category

Number of shares allocated to the category

Market Maker Shares

1,46,000 shares (5.02% of the total issue size)

QIB Shares Offered

13,82,000 shares (47.49% of the total issue size)

NII (HNI) Shares Offered

4,14,600 shares (14.25% of the total issue size)

Retail Shares Offered

9,67,400 shares (33.24% of the total issue size)

Total Shares Offered

61,40,000 shares (100.00% of total issue size)

The minimum lot size for the IPO investment will be 2,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (2,000 x ₹70 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 4,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Application

Lots

Shares

Amount

Retail (Min)

1

2,000

₹1,40,000

Retail (Max)

1

2,000

₹1,40,000

HNI (Min)

2

4,000

₹2,80,000

Key dates to be aware of in the Fonebox Retail IPO (SME)

The SME IPO of Fonebox Retail Ltd IPO opens on Wednesday, 24th January 2024 and closes on Monday, 29th January 2024. The Fonebox Retail Ltd IPO bid date is from 24th January 2024 at 10.00 AM to 29th January 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 29th January 2024.

Event

Tentative Date

IPO Opening Date

24th January 2024

IPO Closing Date

29th January 2024

Finalization of Basis of Allotment

30th January 2024

Initiation of Refunds to non-allottees

31st January 2024

Credit of Shares to Demat account of eligible investors

31st January 2024

Date of listing on the NSE-SME IPO segment

01st February 2024

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account. The credit of shares to the demat account on January 31st 2024, will be visible to investors under the ISIN Code – (INE0Q4701019).

Financial highlights of Fonebox Retail Ltd

The table below captures the key financials of Fonebox Retail Ltd for the last 3 completed financial years.

Particulars

FY23

FY22

FY21

Net Revenues (₹ in crore)

196.26

90.92

0.10

Sales Growth (%)

115.86%

Too large

 

Profit after Tax (₹ in crore)

1.60

0.13

-0.02

PAT Margins (%)

0.82%

0.14%

-20.00%

Total Equity (₹ in crore)

2.10

0.60

0.12

Total Assets (₹ in crore)

38.61

21.11

0.71

Return on Equity (%)

76.19%

21.67%

-16.67%

Return on Assets (%)

4.14%

0.62%

-2.82%

Asset Turnover Ratio (X)

5.08

4.31

0.14

Earnings per share (₹)

2.35

0.19

-0.04

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years.

  • Revenue growth is relevant only in the latest year since the previous almost saw revenues growing from base zero. Hence that growth for FY22 looks inordinately high due to the low base and hence not comparable. Sustainable sales growth will be the key metrics to watch out for.
     
  • While the company has reported robust ROE on the back of low capital base, its PAT margins are under 1%. The reason is that in this multi-brand retail business, markets on sales tend to very low. That is because the retail markets are already quite low and on top of that, the upfront costs in retail expansion can be quite high.
     
  • The asset turnover ratio or the sweating ratio has been quite high, but that may not be a very critical metrics in the retail industry. The focus should be more on the spreads, which is where the numbers of the company are relatively tepid.

 

The company has latest year EPS of ₹2.35 and previous data may not really be comparable. Either ways, the valuations look a little steep if you consider latest year EPS at 29.79 times P/E discounting. The discounting may be slightly unfavourable unless there is apparent visibility of growth in PAT margins. Investors buying into this IPO must have a clearly long term view of more than a hear and a clear appreciation of the fact that the risk-reward is not too favourable at the current juncture. Of course, the good news is that electronics goods demand in India is growing exponentially as people prefer the organized trade segment. That is where the likes of Fonebox will score. However, the investors in this IPO must be the investors with a relatively higher risk appetite.

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