Firstmeridian Business Services Limited

Firstmeridian Business Services  Limited has filed  its DRHP with market regulator SEBI on January 30, 2023 to raise capital through IPO. The IPO of the Company consists of Fresh Issue and Offer for Sale. The size of Fresh Issue is up to [●] Equity Shares aggregating up to ₹ 500.00 million  and OFS of upto [●] Equity Shares aggregating up to ₹ 6,900.00million. As part of OFS, the selling shareholders are Manpower Solutions Limited, New Lane Trading LLP and Seedthree Trading LLP. 

Business Model of the Company

The Company provides a wide range of service offerings, including

(1) general staffing and allied services, by offering contract staffing solutions, workforce automation solutions and trade marketing solutions to meet business needs of clients across diverse industries;

(2) global technology solutions, offered through short- and long-term technology contract staffing solutions for clients; and

(3) other HR services, including permanent recruitment, recruitment process outsourcing (“RPO”), pharmaceutical and healthcare staffing, facility management, engineering and technical staffing, and finance accounting and legal staffing.

Within only four years since the inception, the Company has become India’s third largest staffing company, in terms of revenue for the financial year ended March 31, 2022 (Source: F&S Report).

The revenue from operations increased to ₹28,621.23 million for the year ended March 31, 2022 from ₹21,102.86 million for the year ended March 31, 2021 and ₹20,584.37 million for the year ended March 31, 2020, representing a CAGR of approximately 17.92% for the year ended March 31, 2020 to the year ended March 31, 2022. The revenue from operations amounted to ₹17,352.38 million for the six month period ended September 30, 2022. The number of the Associates increased to 126,824 as at September 30, 2022, as compared to 108,738 as at September 30, 2021, 118,082 as at March 31, 2022, 95,228 as at March 31, 2021, and 86,690 as at March 31, 2020.

Management of the Company

(i) Avinash Vashistha is the Chairperson and an Independent Director of the Company. He obtained his bachelor’s degree of technology in the field of electrical engineering from Indian Institute of Technology, Kanpur in 1982 and his master’s degree in computer science from University of Alberta in 1985. He also holds a master’s degree in business administration from the University of Phoenix in 1993. He has expertise in the technology, consulting, capital and innovation sector. Before his association with the Company, he has held the position of a Whole time Director on the board of Accenture Services Private Limited, the CEO with Tholons Inc and a director of Bluebook Bangalore Private Limited. He has been associated with the Company since April 12, 2022.

(ii)Aduthuraiperumalkoil Ramachandran Chandrasekharan  is an Independent Director of the Company. He obtained his bachelor’s degree in commerce (Hons.) from the University of Calcutta in 1972 and has also completed his bachelor’s degree in Law from the University of Bombay in 1982. He is an associate member of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India, apart from being a certified associate of the Indian Institute of Bankers. He has expertise in sectors like manufacturing, engineering, banking, finance, and information technology. He has been associated with the Company since April 12, 2022.

Object of the Issue

Offer for Sale

The Company will not receive any proceeds from the Offer for Sale by the Promoter Selling Shareholder and the proceeds received from the Offer for Sale will not form part of the Net Proceeds. The Promoter Selling Shareholder will be entitled to the proceeds of the Offer for Sale after deducting his proportion of Issue expenses and relevant taxes thereon.

Fresh Offer

The Company proposes to utilize the Net Proceeds from the Issue towards:

1. Repayment and/ or prepayment of all or certain portion of outstanding borrowing  availed by one of its Subsidiaries, namely Innovsource Services Private Limited

2. General corporate purposes..

In addition, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges and enhancement of the Company’s brand name amongst its existing and potential customers and creation of a public market for the Equity Shares in India.

Risks in the IPO

Highly Competitive Industry

The Company also faces competition from various regional as well global players, including organized and unorganized competitors, depending on the nature and location of services provided. There can be no assurance that the Company will be able to compete successfully against such competitors or that the Company will not lose its key employees or clients to such competitors.

High employee benefits expense

The Company incurs significant employee benefits expense, including salaries and wages, contribution to provident and other funds and staff welfare expenses. For the six month period ended September 30, 2022, the six month period ended September 30, 2021, for the year ended March 31, 2022, for the year ended March  31, 2021 and for the year ended March 31, 2020, the employee benefits expense amounted to ₹16,142.29 million, ₹12,397.83 million, ₹27,048.65 million, ₹20,112.88 million, and ₹19,831.08 million, respectively, representing 93.03%, 94.91%, 94.51%, 95.31% and 96.34% of the revenue from operations, respectively.

An increase in employee costs in India may prevent the Company from maintaining its competitive advantage and may reduce the profitability.

Failure to attract and retain qualified Associates

The Company depends on its ability to attract and retain qualified Associates who possess the skills and experience necessary to meet the staffing requirements of the clients. Any failure to attract and retain qualified Associates who meet the staffing requirements of the clients may adversely affect the business prospect, reputation and future financial performance.

Demand for the staffing services may decline

New technology may emerge and, singly or together with existing technologies, may create disruption to the traditional labor market. The introduction and acceptance of new technology or adoption of automation techniques may reduce demand for human labor, making the staffing services unattractive or redundant.

The Demand may decline whereby human labor is or may be replaced by or disrupted by technology and automation, which may adversely affect the business prospect, operations and financial condition

Inability to identify expansion opportunities

The Company may be unable to fully realize the anticipated benefits of recent acquisitions or any future acquisitions successfully or within the intended timeframe. If the Company is unable to identify expansion opportunities or experience delays or other problems in implementing the strategy of expanding the scale through acquisitions, the growth, business, financial condition, results of operations and prospects may be adversely affected.

Financial Performance 

As per the financial statements of the Company, here are Financial Highlights for FY22 compared to FY21:

1. The total income for FY22 increased by an impressive 35% to Rs. 2869 crore, compared to Rs. 2124 crore in FY21. 

2. In FY22, total expenses rose by 32% to Rs. 2846 crore, compared to Rs. 2153 crore in FY21. 

3. The profit before tax in FY22 showed a significant improvement, increasing by 175% to Rs. 22 crore, as compared to a loss of Rs. 29 crore in FY21. 

4. The profit after tax in FY22 experienced a remarkable growth of 203%, reaching Rs. 34 crore, in contrast to a loss of Rs. 33 crore in FY21. 

5. The total assets of the company in FY22 amounted to Rs. 1002 crore, showing a substantial increase from Rs. 623 crore in FY21. 

6. The total equity and liabilities in FY22 reached Rs. 1002 crore, compared to Rs. 623 crore in FY21. 

7. The net cash generated from operating activities in FY22 was Rs. 59 crore, representing an improvement from Rs. 46 crore in FY21. 

8. The net cash used in investing activities in FY22 amounted to Rs. (14) crore, which was a decrease from Rs. (50) crore in FY21. 

9. Net cash generated from financial activities in FY22 reached Rs. 15 crore, as compared to Rs. (24) crore used in FY21. 

10. The net cash and cash equivalents at the end of FY22 amounted to Rs. 250 crore, a substantial increase from Rs. 49 crore in FY21. This growth in cash reserves demonstrates the company’s improved liquidity position.