Rashi Peripherals IPO - Investment Rationale, Issue Details, Financials, Strengths, Risks & More: Anand Rathi

Anand Rathi's IPO Report

Rashi Peripherals Ltd. will launch its initial public offering on Feb. 07 and the issue will be concluded on Feb. 09.

An information and communications technology products distributor has fixed a price band of Rs 295-311 apiece. The Rs 600 crore-IPO comprises of only fresh issue. The minimum order lot is 48.

Objects of the Issue

• Prepayment or scheduled re-payment of all or a portion of certain outstanding borrowings availed by their company.

• Funding working capital requirements of their company.

• General corporate purposes.

Strengths

• Leading and fastest growing Indian distribution partner for information and communications technology products.

• Pan-India and multi-channel distribution footprint backed by dedicated in-house infrastructure.

• Long-term relationships with marquee global technology brands supported by committed engagement strategy with customers.

• Diversified and comprehensive product portfolio and solutions.

• Scalable business model supported by advanced technology stack.

• Consistent track record of superior financial performance and return metrics.

About the company

Rashi Peripherals is a company that distributes global technology brands in India. They specialise in products related to information and communication technology.

The company's service offerings include value-added services such as pre-sales, technical support, marketing services, credit solutions and warranty management services.

They primarily operate the following two business verticals:

• Personal computing, enterprise and cloud solutions.

• Lifestyle and IT essentials.

We believe that valuations of the company is fairly priced and recommend a 'Subscribe-Long Term' rating to the IPO.

Key risk

• Rashi Peripherals is dependent on various vendors, who are global technology brands, for the products they distribute. In Fiscals 2021, 2022 and 2023 and for the six months ended September 30, 2022 and September 30, 2023, revenues generated from distribution of products manufactured by their top eight global technology brands amounted to 83.15%, 82.42%, 82.11%, 82.50% and 82.39%, respectively, of their revenue from operations. Any delay or failure on part of such global technology brands to supply products may materially and adversely affect their business, profitability and reputation.

• The business is dependent on global technology brands effectively maintaining, promoting or developing their brands and maintaining standard quality products including launching new information and communications technology products at regular intervals.

• Rashi Peripherals’ gross margins are low, which magnifies the impact of variation in revenue, operating costs, bad debts and interest expense on their operating results.

• They are dependent on their relationships with certain online marketplaces and disruptions to such relationships or changes in their business practices, may adversely affect their business and their financial condition, results of operations and cash flows.

• The company could be subject to product liability claims, which may have a material adverse impact on us.

• Certain of their contracts or distribution agreements may have restrictive covenants and can typically be terminated without cause, which could negatively impact their business, results of operation and financial condition.

• They have witnessed negative cash flows in the past, with net cash used in operating activities of Rs 1,097.54 million, Rs 3,152.05 million, Rs 1,145.53 million, Rs 989.17 million and Rs 2,856.73 million in Fiscals 2021, 2022 and 2023, and the six months ended September 30, 2022 and September 30, 2023, respectively. Any negative cash flows in the future would adversely affect their cash flow requirements, which may adversely affect their ability to operate their business and implement their growth plans, thereby affecting their financial condition.

• They purchase inventory in anticipation of sales, and if they fail to manage their inventory effectively during that period or if the inventory value declines, their business and results of operations could be adversely affected.

• Increasing competition in the information and communications technology products distribution industry may create certain pressures that may adversely affect their business, prospects, results of operations, cash flows and financial condition.

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