Zarea Limited targets Rs1b through IPO

Zarea Limited applied for listing on the Pakistan Stock Exchange (PSX) on Monday, aiming to raise at least Rs1 billion through an initial public offering (IPO) of 62.50 million shares, priced at a minimum of Rs16 per share. The offering will be available to corporate investors, affluent individuals, and retail investors.

According to the prospectus available on the PSX website for public comment, Zarea Limited (ZL) is a business-to-business (B2B) e-commerce platform specialising in construction materials such as cement, steel, and agricultural biomass. ZL plans to expand its product range by adding commodities like coal, chemicals, grains, pulses, sugar, fertilizers, cotton, yarn, and other agricultural perishables.

The raised funds will primarily support the development of ZL's IT infrastructure and customer base expansion. Under current regulations, the company's share price could rise by up to 40% through a Dutch auction (book-building process), reaching a maximum of Rs22.4 per share. This price increase could enable ZL to raise a total of Rs1.4 billion through the IPO.

Topline Securities and Growth Securities are acting as joint consultants and book runners for the issuance. This marks the sixth IPO on PSX's main trading platform in 2024. The previous five IPOs collectively raised Rs8 billion, reflecting an improved economic climate in Pakistan.

The PSX benchmark KSE-100 Index has surged by 42.5% in the current calendar year to over 90,000 points, showing positive investor sentiment. The profitability of the top 100 companies in the KSE-100 Index increased by 24.4% in FY24, reaching a record high of Rs1.6 trillion.

The prospectus notes that the Rs1 billion proceeds will be allocated towards enhancing technology, infrastructure, logistics, operations, and marketing for ZL's online platform, as well as for capital expenditures (CAPEX).

ZL states that it has developed a proprietary platform that enables buyers to purchase goods at competitive rates while easily tracking prices through an intuitive interface. The company's primary objective is to transform and digitise B2B commodity marketplaces and streamline customer-focused operations. It also offers services like logistics, storage, credit, and data analytics. A separate statement from ZL highlights that the shares are priced at a price-to-earnings (P/E) multiple of 10.93x at the floor price of Rs16 per share, based on the trailing twelve months' (TTM) earnings as of June 30, 2024. "This is a significant discount of around 52% compared to the technology sector's industry average P/E of 22.99x on the PSX," it stated.

For the fiscal year ending June 30, 2024, ZL reported a 144% increase in revenue, reaching Rs281 million from Rs115 million in FY23. Profit after tax also rose significantly to Rs292.8 million in FY24, up from Rs81.3 million in the previous year.