Primech Holdings Pursues U.S. IPO (Pending:PMEC)

A Quick Take On Primech Holdings Ltd.

Primech Holdings Ltd. (PMEC) has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm provides facilities cleaning and maintenance services in Singapore and Malaysia and wants to expand into other business lines.

Frequently, Asian companies seek to diversify their revenue streams and end up operating unrelated businesses, producing sub-par results due to lack of specialization.

When we learn more about the IPO from management, I’ll provide a final opinion.

Company

Singapore-based Primech was founded to provide a range of cleaning and maintenance services and supplies primarily in Singapore, with a small amount of activity in Malaysia.

Management is headed by Chief Executive Officer Mr. Khazid bin Omar, who has been with the firm since April 2018 and was previously director of housekeeping in the Fairmont Hotel Singapore, a global luxury hotel chain.

Primech has booked fair market value investment of $13 million as of September 30, 2021 from investors including Sapphire Universe and various individuals.

Primech – Customer Acquisition

The firm seeks customers in the categories of private and public facility owners and operators, with private facilities including office buildings, kitchen operators in healthcare, hotels and restaurants and private homes.

87% of the company’s revenues in the most recent reporting period came from general cleaning and maintenance of public common areas.

Sales and Marketing expenses as a percentage of total revenue have risen as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended Sept. 30, 2021	0.8%
FYE March 31, 2021	0.6%
FYE March 31, 2020	0.2%

(Source)

The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose sharply to 16.0x in the most recent reporting period, as shown in the table below:

Sales and Marketing	Efficiency Rate
Period	Multiple
Six Mos. Ended Sept. 30, 2021	16.0
FYE March 31, 2021	1.2

(Source)

Primech’s Market & Competition

According to a 2021 market research report by Allied Market Research, the global market for cleaning services was an estimated $55.7 billion in 2020 and is forecast to reach $111.5 billion by 2030.

This represents a forecast CAGR of 6.5% from 2021 to 2030.

Singapore represents a small fraction of the global market.

The main drivers for this expected growth are a rising awareness of the need for workplace and public place hygiene in the wake of the global pandemic.

Also, the Asia Pacific region is expected to grow at the fastest CAGR of any region, at 7.4% through 2030.

Major competitive or other industry participants include:

• ISS Group

• 800 Super Holdings

• Weishen Industrial Services

• Chye Thiam Maintenance Pte Ltd

• Hygieia Group Limited

• Ramky Cleantech Services Pte Ltd.

Primech Holdings Ltd. Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue

• Uneven gross profit and gross margin

• Variable operating profit

• Increasing cash flow from operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Six Mos. Ended Sept. 30, 2021	$ 26,239,084	15.6%
FYE March 31, 2021	$ 48,088,088	0.7%
FYE March 31, 2020	$ 47,775,187
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended Sept. 30, 2021	$ 5,566,377	-25.5%
FYE March 31, 2021	$ 12,419,177	122.8%
FYE March 31, 2020	$ 5,573,626
Gross Margin
Period	Gross Margin
Six Mos. Ended Sept. 30, 2021	21.21%
FYE March 31, 2021	25.83%
FYE March 31, 2020	11.67%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended Sept. 30, 2021	$ 589,931	2.2%
FYE March 31, 2021	$ 5,784,891	12.0%
FYE March 31, 2020	$ 730,337	1.5%
Net Income (Loss)
Period	Net Income (Loss)	Net Margin
Six Mos. Ended Sept. 30, 2021	$ 405,312	1.5%
FYE March 31, 2021	$ 5,363,055	20.4%
FYE March 31, 2020	$ 309,763	1.2%
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended Sept. 30, 2021	$ 2,039,965
FYE March 31, 2021	$ 3,623,642
FYE March 31, 2020	$ 2,486,792
(Glossary Of Terms)

(Source)

As of September 30, 2021, Primech had $4.3 million in cash and $23.0 million in total liabilities.

Free cash flow during the twelve months ended September 30, 2021, was negative ($709,538).

Primech Holdings Ltd. IPO Details

Primech intends to raise an undisclosed amount in gross proceeds from an IPO of its ordinary shares.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

for growing our business through expanding our range of services and expanding our operations locally and regionally.

to establish our team of software developers, programmers, and engineers to build our own IoT system, software, and robots. Specifically, we are currently at the planning stage to assemble a team with members of academia with whom we will collaborate to start the development of an integrated IoT platform and workforce automation software system for our facility services. The system will integrate commercial off-the-shelf IoT devices such as cameras and sensors to be deployed in a facility and/or on robots, which will evaluate and respond to various events to perform data driven functions or actions to assist our facility services with lower cost and more efficiency. We also intend to develop our proprietary robots based on the Robot Operating System, an open source robotic platform, which will feature the flexibility to customize our robots to meet unique applications for facility services such as cleaning and disinfection services.

for marketing and promotional activities.

for minority investments in one or more companies in the EV conversion and charging business and for the upgrade and the integration of our EV charging function to our fleet of ride-on machines and autonomous cleaning machines. As of the date of this prospectus, we are negotiating to acquire a minority interest in one potential target that we believe will meet our above described objectives. However, as we have not entered into any agreements with this entity, we may invest in other alternative potential targets. We do not intend to acquire a controlling interest in any target company.

for working capital and other general corporate purposes.

(Source)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, the firm is subject to various claims, including a fatal job-site accident from a hired subcontractor of a subcontractor. Management believes that any claims would not have a material adverse effect on its financial condition or operations.

The sole listed bookrunner of the IPO is Tiger Brokers.

Commentary About Primech’s IPO

PMEC is seeking U.S. public market capital to fund its expansion into robotics and EV charging services.

The firm’s financials have generated increasing topline revenue, variable gross profit and gross margin, uneven operating profit and growing cash flow from operations.

Free cash flow for the twelve months ended September 30, 2021, was negative ($709,538).

Sales and Marketing expenses as a percentage of total revenue have risen slightly as revenue has increased; its Sales and Marketing efficiency multiple rose sharply to 16x in the most recent reporting period.

The firm currently plans to pay no dividends on its shares and anticipates that it will use future earnings to reinvest back into its growth initiatives.

The market opportunity for providing cleaning services is expected to grow at a moderate rate of growth through 2030, based on a global growth estimate.

Tiger Brokers is the sole underwriter and there is no data on the firm’s IPO involvement over the last 12-month period.

The primary risk to the company’s outlook is the firm’s expansion into other businesses, which may be unsuccessful.

Many Asian companies seek to diversify their revenue streams and end up operating unrelated businesses, producing sub-par results due to lack of specialization.

When we learn more about the IPO from management, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.