Low Profitability and declining financials

• Rashi Peripherals is involved in the business of distribution of products such as computing devices, graphic cards, CPUs, and motherboards. They also provide cloud solutions to clients. The company’s topline and bottom line have shown little to no growth over the last two years, as the revenue increased marginally whereas the net profit declined by 32% as compared to FY23. Even the net profit margin is very low at 1.5%. The cash flow from operations of the company has consistently been negative in the last 3 fiscal years. This was due to an increase in receivables and higher inventory. This deprives the firm from expanding organically.
• This is a very low margin business and it won’t attract the attention of many investors. The company has been on a decline over the last three years, if we look at its EBITDA Margin, it has been declining over the last three fiscals when it was 3.6% in FY21 which has now declined to 2.8% in FY23. The decline in the financials indicates that the company is struggling with efficiency, and we don’t expect it to improve significantly going forward.
• Even the debt of the company is mounting over the last three years, the company had a debt of Rs 489 in FY21 crore and as of September 2023, the debt of the company stands at Rs 1400 crore which could further lower the net profit margin going forward.

Valuations

• As per FY23, the company is asking for a PE of 17x and a market cap to sales of 0.2x which seems quite fair. But looking at the declining trend in margins of the company, we believe this stock won’t provide any capital appreciation to investors. Hence, we recommend avoiding this IPO.​