Macfos coming with an IPO to raise upto Rs 23.75 crore

Macfos

• Macfos is coming out with a 100% book building; initial public offering (IPO) of 23,28,000 shares of Rs 10 each in a price band Rs 96-102 per equity share.
• The issue will open on February 17, 2023 and will close on February 21, 2023.
• The shares will be listed on SME Platform of BSE.
• The face value of the share is Rs 10 and is priced 9.60 times of its face value on the lower side and 10.20 times on the higher side.
• Book running lead manager to the issue is HEM Securities.
• Compliance Officer for the issue is Sagar Subhash Gulhane.

Profile of the company

The company is primarily an e-commerce based company focused on the marketing of a broad range of electronic components which finds application in basic and advanced engineering products & projects, including emerging technologies such as IoT, Robotics, Automations, Drone, Electric Vehicles, 3D Printing and Auto Guided Vehicles. The company’s broad portfolio consists of over 12,000 SKU’s of electronics components and parts that facilitate consumers such as manufacturers, electrical & mechanical engineering students, educational institutions, researchers and developers, to turn their ideas into reality as well as to speed up their product R&D and prototyping cycle.

Through its e-commerce website and mobile application, Robu.in, the company sells a broad range of electronic items, including: robotic parts, drone parts, E-bike parts, IoT & Wireless items, 3d printer & parts, DIY learning kits, development boards, raspberry Pi (Single board computers& Peripherals), sensors, motors, motor drivers, pumps, batteries, chargers, electronic modules & displays and various other mechanical and electronic components.

As on September 30, 2022, the company was connected with over 140 overseas and domestic vendors for sourcing the electronic items and parts. It also has a portfolio of 3 owned brands (details given hereunder), which are manufactured/procured from third parties based on the specifications built by the company through its R&D efforts. With the dedicated fulfillment Centre in Pune, Maharashtra comprising of 7,900 sq. ft. area and third-party logistics services, the company is capable to deliver the products across India as well as overseas.

Proceed is being used for:

• Achieving the benefits of listing the equity shares.

Industry Overview

The Indian electronics system design and manufacturing (ESDM) sector is one of the fastest growing sectors in the economy and is witnessing a strong expansion in the country. The ESDM market in India is well known internationally for its potential for consumption and has experienced constant growth. The ESDM market in India is well known internationally for its potential for consumption and has experienced constant growth. Indian manufacturers are attracting the attention of multinational corporations due to shifting global landscapes in electronics design and manufacturing capabilities, as well as cost structures. Companies from all over the world are striving to develop local capacities in India not only to serve the domestic market but also to cater to international markets.

In recent years India has experienced a boom in internet and smartphone penetration. The number of internet connections in 2021 increased significantly to 830 million, driven by the ‘Digital India’ programme. Out of the total internet connections, 55% of connections were in urban areas, of which 97% of connections were wireless. The smartphone base has also increased significantly and is expected to reach 1 billion by 2026. This has helped India’s digital sector and it is expected to reach US$ 1 trillion by 2030. This rapid rise in internet users and smartphone penetration coupled with rising incomes has assisted the growth of India’s e-commerce sector.

India’s e-commerce sector has transformed the way business is done in India and has opened up various segments of commerce ranging from business-to-business (B2B), direct-to-consumer (D2C), consumer-to-consumer (C2C) and consumer-to-business (C2B). Major segments such as D2C and B2B have experienced immense growth in recent years. India’s D2C market is expected to reach $60 billion by FY27. The overall e-commerce market is also expected to reach $350 billion by 2030, and will experience 21.5% growth in 2022 and reach $74.8 billion. 

Pros and strengths

Diverse portfolio of electronic items: Over the years, the company has created an extensive portfolio of over 12,000 SKU’s electronic items and parts ranging from robotic parts, drone parts, E-bike parts, IoT & Wireless items, raspberry Pi items, 3d printer & parts, DIY learning kits, development boards, sensors, motors, motor drivers, pumps, batteries, chargers, electronic modules & displays and various other mechanical and electronic components. The company’s portfolio includes over 100 brands including international brands such as Raspberry-Pi, AdaFruit, Arduino, Cytron, WaveShare Electronics as well as non-branded products. The breadth of its portfolio, coupled with its understanding of the needs and preferences of the consumers in the electronics field, enables it to be a one stop destination to cater to the varying needs of its diverse consumer base.

Strong, diverse and growing customer base: The company has a strong and diversified consumer base across India. In the FY22, it served over 2 lakh orders placed by over 83,000 consumers on its website, mobile application and directly. These orders have been placed from all the 28 states and 6 Union Territories of India. For FY22, its revenue from operations were Rs 5551.47 lakh of which 62.59% were from online mode (website and mobile application) and 37.41% were through offline channel. For six months’ period ended September’22, it derived 51.47% of the revenue from online mode (website and mobile application) and 48.53% through offline channel. Under the offline channel, the company generally serves Corporates and large enterprises. Its diverse customer base helps it limit its dependency on a specific customer segment or geography thereby reducing financial and concentration risk.

Scalable and reliable technology platform: The company engages with consumers mainly through easy-to-navigate mobile app and website which automate and digitize the consumer journey of purchasing electronic parts. It manages its website and mobile application through its dedicated in-house IT team, which works continuously to create and enhance personalized experience of its consumers across their journey on its website and mobile-app. Also, the company has an internally developed ERP software which is used for order processing, inventory management, shipping, billing etc. Its mobile app and website (desktop and mobile) is designed to be scalable and reliable providing it flexibility to launch new products/features as per its internal road map.

Risks and concerns 

Maximum revenue comes from top three product categories: The revenue contribution of its top three product categories i.e. (a) Sensors; (b) Raspberry Pi (Single board computer) and peripherals & Modules and (c) Batteries, Chargers and Accessories accounted for a significant portion of its total revenue in the last three Financial Years and six months ended September 30, 2022 constituting 40.14% in FY20, 38.14% in FY21, 36.67% in FY22 and 36.34% in six months ended September 30, 2022. In case of increased competition, pricing pressures, fluctuation in the demand or supply of products within its top three categories or other factors, its revenue from these products may decline in the future. Any adverse developments with respect to the sale of products within its top three categories could adversely affect the revenue.

Geographical constrain: The company presently operates its entire business through its fulfillment centre (warehouse) and registered office located at Pune, Maharashtra. Due to the geographical concentration of its warehouse and registered office in Pune, its operations are susceptible to local, regional and environmental factors, such as social and civil unrest, regional conflicts, civil disturbances, economic and weather conditions, natural disasters, demographic and population changes, and other unforeseen events and circumstances. Such disruptions could result in the damage or destruction of a significant portion of its warehousing abilities, significant delays in the transport of its products, loss of key managerial personnel, and/or otherwise adversely affect its business, financial condition and results of operations.

Stiff competition: The industry is highly competitive and the competition will continue to increase. The company’s competitors include a number of online marketplaces, retailers with physical stores, and brands that take a direct-to-consumer approach, effectively removing it from the distribution and sales process. The internet and mobile networks provide new, rapidly evolving and competitive channels for the sale of all types of goods and services. Consumers who purchase goods and services through the company have other alternatives, and sellers have other channels to reach consumers. Online and offline competitors may offer goods and services that it does not offer and which may be more attractive and devote more resources to marketing and promotional campaigns. In addition, competitors may innovate faster and more efficiently, and new technologies may increase competitive pressures by enabling competitors to offer more efficient or lower-cost services or offer products direct to the consumer. If the company is unable to change its offerings in ways that reflect the changing demands of offline and online sellers and marketplaces or compete effectively with and adapt to such changes, its business, financial condition, cash flows and results of operations would be adversely affected.

Outlook

Macfos is primarily an e-commerce company. The company has an e-commerce website and mobile application, Robu.in. The company sell a broad range of electronic items, including robotic parts, drone parts, E-bike parts, IoT & Wireless items, 3d printer & parts, DIY learning kits, development boards, Raspberry Pi (Single board computers& Peripherals), sensors, motors, motor drivers, pumps, batteries, chargers, electronic modules & displays and various other mechanical and electronic components. On the concern side, the company derives a significant portion of its revenue from its top three product categories, and its business may be adversely affected if products in these categories do not perform as well as expected. Moreover, the company has incurred significant indebtedness towards working capital and capital expenditure, which exposes it to various risks which may have an adverse effect on its business and results of operations.

The company is coming out with an IPO of 23,28,000 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 96-102 per equity share. The aggregate size of the offer is around Rs 22.35 crore to Rs 23.75 crore based on lower and upper price band respectively. Minimum application is to be made for 1200 shares and in multiples thereon, thereafter. On performance front, total income of the company for the FY22 stood at Rs 5,587.07 lakh whereas as against Rs 2,733.76 lakh in FY21, representing significant increase of 104.37%. The main reason of increase was increase in the business operations of the company. Moreover, the company’s Restated profit after tax for FY22 stood at Rs 601.27 lakh in comparison to Rs 158.31 lakh in the FY21, representing an increase of 279.81%.

Going forward, the company has built its consumer base over the years and continue to aim to attract new consumers to its platform by providing a large array of electronic items and solutions and offering necessary support services. Its strategy is to provide its customers with a comprehensive range of products at value for money prices and maintain optimal customer service standards. To generate brand awareness and traffic for its platform, the company intends to continue to carry out digital marketing activities such as Google Ads & Facebook Ads and also aim to utilize content-based marketing through content articles, search engine optimization and social media presence. Moreover, the company intends to have additional sales and marketing team focused primarily on B2B customers in order to penetrate the untapped market.