Sancode Technologies coming with an IPO to raise Rs 5.15 crore

Sancode Technologies

• Sancode Technologies is coming out with an initial public offering (IPO) of 10,95,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 47 per equity share.
• The issue will open for subscription on March 31, 2023 and will close on April 6, 2023.
• The shares will be listed on SME Platform of BSE.
• The share is priced 4.7 times higher to its face value of Rs 10.
• Book running lead manager to the issue is Shreni Shares.
• Compliance Officer for the issue is Narendra Gupta.

Profile of the company

The company is engaged in the business of software and product development offering an API enabled platform and solutions that enable organizations to rapidly adopt powerful technology applications addressing their strategic business needs. It enables organizations to drive digital transformation and competitive differentiation by providing them easy to implement pre-built business logic and solution workflows specially for finance automations.

The company has evolved it’s business to develop, provide, undertake, design, distribute and deal in systems and application software, undertake offshore software development projects, digital transformation, cloud migration, advance analytics, robotic process automation, machine learning and AI projects in all areas of application including those in emerging niche segments like Internet and Intranet website applications, enterprise solutions software, resource planning, e-commerce, value added products and other business applications for corporations across the globe.

It offers its services across industries and a diversified customer base majorly in the United States of America which include clients from manufacturing, FMCG, banks and finance institutions, retail and real estate. It has entered into various Business Support Agreements wherein it has agreed to provide business support and strategy services. The company has signed various Business Partnership Agreements offering solutions such as digital innovation platform that helps corporations fastrack their technology adoption and innovation projects.

Proceed is being used for:

• Funding working capital requirements
• General Corporate Purpose

Industry overview

The IT & BPM sector has become one of the most significant growth catalysts for the Indian economy, contributing significantly to the country’s GDP and public welfare. The IT industry accounted for 7.4% of India’s GDP in FY22, and it is expected to contribute 10% to India’s GDP by 2025. As innovative digital applications permeate sector after sector, India is now prepared for the next phase of growth in its IT revolution. India is viewed by the rest of the world as having one of the largest Internet user bases and the cheapest Internet rates, with 76 crore citizens now having access to the internet.

According to National Association of Software and Service Companies (Nasscom), the Indian IT industry’s revenue touched $227 billion in FY22, a 15.5% YoY growth. According to Gartner estimates, IT spending in India is expected to increase to $101.8 billion in 2022 from an estimated $81.89 billion in 2021. Indian software product industry is expected to reach $100 billion by 2025. Indian companies are focusing on investing internationally to expand their global footprint and enhance their global delivery centres. The data annotation market in India stood at $250 million in FY20, of which the US market contributed 60% to the overall value. The market is expected to reach $7 billion by 2030 due to accelerated domestic demand for AI. Exports from the Indian IT industry stood at $149 billion in FY21. Export of IT services has been the major contributor, accounting for more than 51% of total IT export (including hardware). BPM and engineering and R&D (ER&D) and software products export accounted for 20.78% each to total IT exports during FY21. The ER&D market is expected to grow to $42 billion by 2022.

India is the top most offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. The Indian IT & business services industry is expected to grow to $19.93 billion by 2025. Spending on information technology in India is expected to reach $144 billion in 2023. By 2026, widespread cloud utilisation can provide employment opportunities to 14 million people and add $380 billion to India's GDP.

Pros and strengths

Software product and solutions for finance automation: It is a software and product development company that enables organisations to rapidly develop and adopt powerful solutions addressing their strategic business needs specially in finance automation. Its team has experience in the finance and accounting industry and have worked on a variety of use cases and solutions for CFOs and finance teams. It has built pre-built use cases and logic flows for finance automation. It is well positioned to benefit from the anticipated growth of the digital transformation technology due to its penetration in the global startup ecosystem and access to innovative startups, market expertise, geographic reach as well as its differentiated value-added service offerings that helps corporations fastrack technology adoption and proof of concept.

Clients in international market: The company caters mainly to international markets. Its customer base is spread across the globe with presence in countries majorly United States of America. It also has presences in international markets by way of its foreign subsidiaries such as Zsolt Vetures Inc and Dhruva Advisors USA Inc. On a consolidated level, its revenue from operations include revenue from these foreign subsidiaries and on a standalone level, majority of its revenue from operations is from customer base spread across the globe, specially the United States of America.

Experienced promoters: The company is individually promoted by Amit Vijay Jain, Khushboo Jain and Mihir Deepak Vora. Its promoters together with a professional team of managerial persons govern the company, manage, and control the major affairs of its business operations with their considerable experience in Finance, Consulting, Technologyand Software industries. Its Promoter, Amit Jain has an extensive experience of consulting, innovation and project management. He has more than 10 years of experience in corporate restructuring and softech consultancy. He oversees the entire business operations and overall functions of the company and is responsible for overseeing the strategic growth initiatives and expansion plans. He has been instrumental in driving its growth and implementing its strategies.

Risks and concerns

Maximum revenue comes from top 10 customers: its business and revenues are substantially dependent on few of its customers. It is entirely dependents on few of its customers for revenue from operations and its top 10 customers contribute 100.00% of its revenue from operations for the period ended September 30, 2022 and for the financial year ended March 31, 2022, 2021 and 2020, as per its restated consolidated financial statements. It has entered into Business Support Agreement with few of its customers by way of which it provides services to clients of the said customer which encompass a wide range of activities and may vary depending on the specific needs of the customer.

Product development is long, expensive and uncertain process: The development of its products is a costly, complex and time-consuming process, and the investment in their development often involves a long wait until a return is achieved on such an investment. It has made, and will continue to make, significant investments in software product research and development and related product opportunities. Investments in new technology and processes are inherently speculative. Commercial success depends on many factors, including the degree of innovation of the software products and services developed through its research and development efforts, sufficient support from its channel partners, and effective distribution and marketing. Accelerated software product introductions and short product life cycles require high levels of expenditure on research and development. Such expenditure may adversely affect its operating results if they are not offset by corresponding and timely revenue increases.

Operate in competitive environment: The industry in which the Company operates is fairly competitive and its results of operations and financial condition are sensitive to, and may be materially adversely affected by competitive pricing and other factors. Competition may result in pricing pressures, reduced profit margins, lost market share or a failure to grow its market share, any of which could substantially harm its business and results of operations. The domestic segment which it cater to is fragmented and fairly competitive. It competes primarily on the basis of quality of its services, customer satisfaction and marketing. Thus, some of its competitors may have certain other advantages over it, including established track record, superior service offerings, larger portfolio of services, technology and greater market penetration, which may allow its competitors to better respond to market trends.

Outlook

Sancode Technologies is a software and product development company offering an API enabled platform and solutions that enable organizations to rapidly adopt powerful technology applications addressing their strategic business needs. On the concern side, its business and revenues are substantially dependent on few of its customers. It is entirely dependent on few of its customers for revenue from operations. Moreover, the industry in which the company operates is fairly competitive and its results of operations and financial condition are sensitive to, and may be materially adversely affected by competitive pricing and other factors.

The company is coming out with an IPO of 10,95,000 equity shares of face value of Rs 10 each for cash at a fixed price of Rs 47 per equity share to mobilize Rs 5.15 crore. On performance front, revenue from operation has increased by 56.70% from Rs 155.62 lakh for FY 2020- 21 to Rs 243.85 lakh for FY 2021-22. The increase in revenue is primarily due to the technology boom in the post Covid era which has led to growth in number of SaaS and Software based Companies and Startups with global outlook. Moreover, profit after tax for FY 2021-22 was 62.94 lakh as compared to net loss of 4.60 lakh in FY 2020-21. The increase was due to increase in its revenue from operations and mainly because of the extraordinary item of Rs 59.97 lakh which was repayment waiver of PPP Loan granted by the US Govt.

Going forward, the company intends to explore and evaluate strategic acquisition and technology alliance opportunities to gain access to new clients and sectors, add new technology capabilities to its offerings that drive synergies with its existing business ventures. It has entered into various Business Support Agreements wherein it has agreed to provide business support and strategy services. The company has signed various Business Partnership Agreements offering solutions such as digital innovation platform that helps corporations fastrack their technology adoptionand innovation projects. In future, the company is planning to increase the breadth of its software products and services by expanding beyond finance automations in other functions of a business as well like marketing & sales, supply chain etc through software development for the new enterprise product range.