Updater Services fails to impress, lists at 5% discount to IPO price
Updater Services, a business support services company, had a subdued listing on the stock exchanges on October 4. The company’s initial public offering (IPO) was subscribed 2.9 times, which means that investors showed moderate interest in the IPO. There were bids for 3.47 crore equity shares against the total offering size of 1.2 crore shares.
Despite the subscription numbers falling short of expectations, Updater Services went ahead with its IPO. However, when it debuted on the National Stock Exchange (NSE), it listed at Rs 285 per share, which was slightly below the issue price of Rs 300 per share. On the Bombay Stock Exchange (BSE), it listed at Rs 299.9 per share, again lower than the issue price.
This subdued listing suggests that there might have been concerns or uncertainties among investors about the company’s future prospects, leading to a lower listing price. Investors typically expect IPOs to list at a premium to the issue price, so a listing at a discount can be seen as a lackluster debut.
It’s worth noting that IPO performances can be influenced by various factors, including market sentiment, the financial health of the company, and investor perceptions. In this case, the tepid subscription numbers and the lower listing price on the exchanges could reflect investor caution or reservations about Updater Services.
Updater Services successfully raised Rs 640 crore through its inaugural public issue, which was composed of two components: a fresh issuance of shares valued at Rs 400 crore and an offer-for-sale of Rs 240 crore by existing shareholders, including the company’s promoter, Tangi Facility Solutions.
From the net proceeds generated by the fresh issue, Updater Services has outlined a strategic allocation plan. First and foremost, Rs 133 crore will be earmarked for debt reduction, a prudent move that will not only enhance the company’s financial stability but also help in reducing interest expenses, ultimately strengthening its balance sheet.
A significant portion of Rs 115 crore will be dedicated to fulfilling the company’s working capital requirements. This allocation is crucial for the day-to-day operations of the business, ensuring it has the necessary financial resources to manage short-term obligations, pay suppliers, and maintain operational efficiency.
Moreover, Updater Services has set aside Rs 80 crore for inorganic initiatives, which will be funded using the fresh issue proceeds. These inorganic initiatives may encompass acquisitions or strategic investments in other businesses, aligning with the company’s growth strategy and expanding its market presence.
The balance of the funds, after accounting for debt reduction, working capital, and inorganic initiatives, will be allocated towards general corporate purposes. This category encompasses a wide range of operational expenses necessary for the overall functioning of the company, which may include research and development, marketing efforts, and other strategic investments to bolster its competitive position and long-term sustainability.
In summary, the capital raised through the IPO will be strategically utilized to reduce debt, support working capital needs, drive inorganic growth, and cater to general corporate requirements, all of which collectively contribute to Updater Services’ financial strength and its ability to pursue growth opportunities in the business support services sector.
The company’s financial performance in recent fiscal years has displayed a certain level of volatility, particularly in terms of profitability, despite maintaining strong revenue growth. In the fiscal year ending March 2023, the company reported a net profit of Rs 34.6 crore, which represents a decline from the previous year’s net profit of Rs 57.4 crore and the net profit of Rs 47.56 crore recorded in FY21.
However, the company’s revenue from operations has shown a robust upward trajectory. In FY23, the revenue surged to Rs 2,098.9 crore, marking a substantial increase from the revenue figures of Rs 1,483.5 crore in FY22 and Rs 1,210 crore in FY21.
The disparity between revenue growth and profitability decline suggests that the company may have encountered challenges or incurred increased costs that impacted its bottom line in recent years. These challenges could include rising operating expenses, increased competition, or other factors affecting profit margins.
Updater Services operates as a prominent integrated facilities management services and business support services provider, serving a diverse clientele across India. However, there are certain key risks and challenges associated with its business model.
One significant risk highlighted by Ventura Securities is the extensive workforce that the company deploys across various locations, including customer premises. This distributed workforce model can expose the company to potential service-related claims, losses, or disruptions. Such incidents could negatively impact the company’s reputation and its ability to provide consistent and reliable services to its clients. Managing and maintaining the quality and efficiency of services in a geographically dispersed environment can be a complex task and requires robust operational and risk management strategies.
Another concern is the company’s high attrition rates, which have been notable in recent fiscal years. Attrition refers to the rate at which employees leave the organization, and high attrition rates can be problematic for several reasons. It can lead to increased recruitment and training costs, disrupt the continuity of services, and impact employee morale. With attrition rates at 77.78 percent in FY21, 65.80 percent in FY22, and 77.60 percent in FY23, Updater Services may face challenges in retaining skilled and experienced employees, which could affect service quality and operational efficiency.
Addressing these workforce-related challenges and implementing effective retention strategies will be crucial for Updater Services to maintain its reputation, ensure service consistency, and sustain its growth in the competitive facilities management and business support services industry. Additionally, the company may need to invest in talent development and employee engagement initiatives to mitigate the risks associated with high attrition rates.
