Safa Systems & Technologies coming with an IPO to raise upto Rs 4 crore

Safa Systems & Technologies

• Safa Systems & Technologies is coming out with an initial public offering (IPO) of 4000000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 10 per equity share.
• The issue will open on January 28, 2022 and will close on February 1, 2022.
• The shares will be listed on SME Platform of BSE.
• The share is priced 1 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Finshore Management Services.
• Compliance Officer for the issue is Pushpita Dasgupta.

Profile of the company

Safa Systems & Technologies is in the business of distributorship of consumer durable products like Mobile phones, Mobile phone accessories, Tablets, LED TVs, Home appliances and wearable devises of various brands like Xiaomi, OPPO, TECNO, Micromax, One Plus in Kerala. The company works in B2B (Business to Business) model.

The range of products which the company deals as on date includes Telecommunication devices, Accessories, LED television, Tablets, Internet of Things Products, Home appliances, etc. The commitment, dedication, delivery, and quality services are well known in the industry and it has built its goodwill and reputation from it. The company is one of the key distributors of Electronic Products and accessories in Kerala. Presently the company has its distributorship agreement with the reputed Brands like Xiaomi, OPPO, TECNO, Micromax, One Plus for distribution of the Smartphones, LED TV and accessories in the State of Kerala.

The company value relationships with all its stakeholders: clients, employees, investors, vendors and others. All its endeavors have always had an inherent objective of providing value to all the people associated with us. It does not see its business as an isolated entity that is driven by self-interest, but view it as part of a beautiful and efficient business ecosystem where its every move makes a positive difference for all the entities involved. Every member of its organization is committed to its vision and business ethics.

Proceed is being used for:

• Meeting the working capital requirements of the company.
• Meeting the issue expenses.
• General corporate purposes.

Industry overview

Indian consumer durables market is one of the largest and fastest growing segments within India’s consumer market. The market comprises of a huge middle class (urban and rural), relatively large affluent class and a small economically disadvantaged class. Global corporations view India as one of the key markets from where future growth is likely to emerge. The growth in India’s consumer market would be primarily driven by a favourable population composition and increasing disposable income. Consumer durables consists of two main categories: home and household appliances, and consumer electronics. Major and small appliances, like refrigerators, washing machines, and microwave ovens, vacuum cleaners and fans, are broadly classified as home appliances. Consumer electronics includes television sets, radios, personal computers and sometimes mobile phones and other electronic devices, like tablets, wearable devices, etc.

With the continuous rise of disposable income and technological sophistication, the demand for a variety of consumer durables goods is increasing. This in turn is encouraging strong competition among the different consumer durables brands operating in India. The rural and urban markets for consumer durables have been growing at a rate of around 15% on an average. When a new product is introduced, initially a small fraction of the population will purchase it, gradually its potential consumer base will grow and continue till all potential buyers have it. This leads to the diffusion of durables. Some durables become outdated which are no longer in demand due to availability of better substitutes. The demand for refrigerators, washing machines, water heaters, vacuum cleaners, etc. are restricted to higher income groups. Unit price and demand for these durables show no significant variation.

Pros and strengths

Organizational stability along with management expertise: The company promoters have years of experience in the line of business and run several group companies, and partnerships that operate in several sectors. All the businesses of the promoters have been successful and profitable. In the telecommunications and electronic accessories business as well, the company has successfully established itself as a leading player in the market.

Smooth flow of operations: Established relationship with customers and suppliers ensure stability in demand and an uninterrupted supply of products. The company has maintained long-standing relationship with all the retail outlets as well as the brand suppliers. It is successful in building a strong client base for its business. The existing business relationships ensure a steady flow of business and help the company stay ahead of competition.

Existing supplier relationship: The company’s existing supplier relationship protects the business with terms of supply and pricing of the products, the quality of the products offered etc. The company, being a small and medium size organization, relies on personal relationships with its suppliers. The company enjoys existing relationship with its suppliers. Further it also leverages the past experience of its management in maintaining effective supplier relationship.

Risks and concerns

Delays or defaults in payment by customers: The company extends credit to certain of its customers for long periods of time and there is no assurance that it will be able to recover outstanding amounts in part, full or at all. It has and may continue to have high levels of outstanding receivables. Its average outstanding receivable days are 45 to 60 days in the past three financial years. Hence, if delays or defaults in client payments continue or increase in proportion to its total revenues, it could negatively affect its cash flows and consequently affect its financial condition and operations. Further, while it may take appropriate action in the event of a non-payment of receivables, there can be no assurance that it will be able to successfully recover outstanding amounts owed to it in part or full, which in turn could affect its cash flows and may adversely affect its financial condition and operations.

Dependence on third-party services: The company uses vehicles/courier services owned by third parties on time to time basis. It cannot assure that it will be able to obtain access to preferred third-party services for its supply/sale requirements, or at attractive rates or that these services will have adequate available capacity to meet its needs or be able to meet its requirements in a timely manner. Further, if it is unable to procure the services of third-party capable of sufficiently scaling up operations in response to increased demand from its customers, it may be compelled to make capital expenditures or seek out costlier or lower quality third-party service to meet its needs. Any inability to secure vehicles or courier services or on attractive terms could have an adverse effect on its business, financial condition and results of operations.

Highly dependent on operations in certain geographical region of Kerala: The company has derived a substantial portion of its revenue from products sold to customers based in Kerala only. If the economic conditions of Kerala become volatile or uncertain or the conditions in the financial market were to deteriorate, especially in recent times due to the COVID-19 pandemic, or if there are any changes in laws applicable to its industry or if any restrictive conditions are imposed on it or its business, there will be a severe impact on the financial condition of its business. Further, the ultimate customers located in these geographies may reduce or postpone their spending significantly which would adversely affect its operations and financial conditions.

Outlook

Safa Systems & Technologies is engaged in the business of distributorship of consumer durable products like Mobile phones, Mobile phone accessories, Tablets, LED TVs, Home appliances and wearable devises of various brands like Xiaomi, OPPO, TECNO, Micromax, One Plus in Kerala. The company works in B2B (Business to Business) model. The company has strict quality regulations and has been also awarded with ISO 9001:2015 quality certifications. Recently, the company has taken an office in Mumbai as a part of its expansion plans to grow their presence into other regions of the country. On the concern side, the company’s business requires working capital, part of which would be met through additional borrowings in the future. Further bank loan availed in the partnership firm is in the process of being transferred to the company and Bank sanction is pending. Besides, the company requires several statutory and regulatory permits, licenses and approvals to operate its business. Many of these approvals are granted for fixed periods of time and need renewal from time to time.

The company is coming out with a maiden IPO of 4000000 equity shares of Rs 10 each at a fixed price of Rs 10 per equity share to mobilize Rs 4 crore. On the performance front, during the FY 2020-21 the revenue from operation and other income of the erstwhile partnership firm’s decreased to Rs 20,866.09 lakh as against Rs 25,522.55 lakh in the FY 2019-20. Income from operations decreased mainly duly to covid-19 pandemic impact. The restated Profit after Tax for FY 2020-21 has decreased to Rs 29.35 lakh as against Rs 31.20 lakh in the FY 2019-20. As part of company’s growth strategy it intends to focus on increase in volume of sales by increasing its area of operation. This is expected to be done through expanding its business to other states with the view of establishing the Company at a national level. Also, the company intends to improve operating efficiencies to achieve cost reductions to have a competitive edge over the peers, especially when the company expands its business to other states where certain competitive businesses are already established.