Unicommerce eSolutions IPO

Unicommerce eSolutions IPO (initial public offering) will open for subscription on August 6, 2024 and will close on August 8, 2024. Here's a breakdown of the e-commerce enablement SaaS (software-as-a-service) provider's strengths, weaknesses and growth prospects to help investors make an informed decision.

Unicommerce eSolutions IPO in a nutshell

• Quality : Between FY22 and FY24, Unicommerce eSolution's three-year average ROE and ROCE were nearly 15.3 and 21.8 per cent, respectively.
  
• Growth : During FY22-24, its revenue and net profit grew annually by 32.5 and 47.5 per cent, respectively.
  
• Valuation : Post the IPO, Unicommerce eSolution's stock will trade at a P/E and P/B ratio of 84.6 and 16.1 times, respectively.
  
• Overview : The growing internet penetration in India has led to e-commerce and D2C (direct-to-consumer) brands gaining popularity. This is expected to be a key growth driver for Unicommerce eSolutions. Yet, factors such as low entry barriers, stiff competition from peers and technological disruptions may hamper the company's prospects.

About Unicommerce eSolutions

Incorporated in 2012, Unicommerce eSolutions offers a platform to help D2C brands, sellers and logistics service providers manage their operations more efficiently. It has a comprehensive range of SaaS products that helps enterprises streamline their e-commerce operations as well as post-purchase journeys more efficiently. Further, its product suite is designed to meet the needs of businesses across all sectors and sizes.

Strengths of Unicommerce eSolutions

• Long-standing clientele: Given that Unicommerce eSolutions' products act as an integrated technology stack for businesses, it has resulted in high client royalty for the company. In fact, in FY24, its client retention ratio stood at 50.5 per cent.
  
• Low concentration risk: Unicommerce eSolutions has a diversified client base, as its top 10 clients contributed only 27 per cent to the company's revenue in FY24.

Weaknesses of Unicommerce eSolutions

• Highly competitive industry: Since the SaaS industry has low entry barriers, Unicommerce eSolutions faces stiff competition from both large and small players.
  
• High industry dependence: The company's revenues are highly dependent on the e-commerce industry. Thus, any change or disruption in the industry can significantly impact Unicommerce eSolutions' financials.

Risk report

Unicommerce eSolutions and its business

• Was the company's earnings before tax more than Rs 50 crore in the last 12 months?
  No. Unicommerce eSolutions reported a profit before tax of Rs 17 crore in FY24.
  
• Will the company be able to scale up its business?
  Yes. The growing number of e-commerce businesses in India driven by rising internet penetration and mushrooming of D2C brands is expected to help Unicommerce eSolutions scale up its operations. Moreover, the e-commerce enablement SaaS industry is expected to grow at a yearly rate of 25 per cent to reach around $19 billion by 2027.
  
• Does the company have a credible moat?
  No. Since this software can be easily created, the industry has low entry barriers.

Management

• Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
  Yes. Post the IPO, the promoters' stake will increase to 39.4 per cent.
  
• Do the top three managers have more than 15 years of combined leadership at Unicommerce eSolutions?
  No. The combined leadership of the top three managers is less than 15 years.
  
• Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
  Yes. There is no information to suggest otherwise.
  
• Is the company's accounting policy stable?
  Yes. There is no information to suggest otherwise.
  
• Is Unicommerce eSolutions free of promoters pledging its shares?
  Yes. The company is free of promoters pledging their shares.

Financials

• Did the company generate a current and three-year average return on equity (ROE) of more than 15 per cent and a return on capital employed (ROCE) of more than 18 per cent?
  Yes. Unicommerce eSolution's three-year average ROE and ROCE stood at 15.3 and 21.8 per cent, respectively, while its ROE and ROCE in FY24 were 19 and 27.8 per cent, respectively.
  
• Was the company's operating cash flow positive during the last three years?
  Yes. It reported positive cash flows from operations between FY22 and FY24.
  
• Is the company's net debt-to-equity ratio less than one?
  Yes. Unicommerce eSolution's net debt-to-equity ratio stood at 0.1 times as of FY24.
  
• Is Unicommerce eSolutions free from reliance on huge working capital for day-to-day affairs?
  Yes. Being a service provider, it has low working capital requirements.
  
• Can the company run its business without relying on external funding in the next three years?
  Yes. Unicommerce eSolutions doesn't require huge capex for growth. This is because it provides a software platform for companies to manage their end-to-end e-commerce operations. Further, the company's growth primarily comes from onboarding new clients, maintaining relationships with the existing ones and regularly upgrading the software to boost efficiency.
  
• Is Unicommerce eSolutionsfree from meaningful contingent liabilities?
  Yes. The company doesn't have any contingent liabilities as of FY24.

Valuations

• Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
  No. Unicommerce eSolution's company will offer an operating earnings yield of 1.1 per cent.
  
• Is the stock's price-to-earnings ratio less than its peers' median level?
  The company will trade at a price-to-earnings ratio of 84.6 times. There are no listed peers for comparison.
  
• Is the stock's price-to-book value less than its peers' average level?
  The company will trade at a price-to-book ratio of 16.1 times. There are no listed peers for comparison.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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