Tejas Networks IPO – What are the hidden factors?
For the past few weeks, investors are awaiting for Tejas Networks IPO Date and news about it. Finally the date is announced. Bengaluru based Tejas Networks IPO would open for subscription on 14th June, 2017. Tejas Networks Ltd is a leading India-based optical and data networking products company. Its revenues grown at 33% CAGR in last 5 years. It earned over 4.7% profits in FY16. What are the positive factors in Tejas Networks IPO? What are the hidden factors in Tejas Networks Ltd IPO? In this article, I would provide some interesting insights and hidden facts and do Tejas Networks IPO Review. Should you invest in this IPO or not?
About Tejas Networks Ltd
They are an India-based optical and data networking products company with customers in over 60 countries. They design, develop and sell high-performance and cost-competitive products to telecommunications service providers, internet service providers, utility companies, defence companies and government entities. Its products are used to build high-speed communication networks that carry voice, data and video traffic from fixed line, mobile and broadband networks over optical fibre. Its products utilise a programmable software-defined hardware architecture with a common software code-base that delivers an app-like ease of development and upgrades of new features and technology standards. Currently, India is Its largest geographic segment (in terms of revenue) and they are well-positioned to take advantage of the growth opportunities arising out of the Digital India and the Make-in-India programs of the Indian Government.
Issue details of Tejas Networks IPO
- IPO opens: 14-Jun-2017
- IPO closes: 16-Jun-2017
- Face Value: Rs 10 per share
- Issue price band: Rs 250 to Rs 257 per share
- Issue size: Rs 450 Crores of fresh issues + shares of Offer for sale totals to approx. Rs 750 Crores.
- Market lot: 55 shares and in multiples of 55 shares there-of.
- Minimum investment: Rs 13,750 on lower price band
- Leading Managers: Axis Capitals, Citigroup Global Markets, Edelweiss Financial Services and Nomura Financial Advisory
- Listing: BSE / NSE
- Download Tejas Networks IPO DRHP Prospectus at this link.
Objects of the Tejas Networks Ltd IPO issue
1) The Offer for Sale: Their Company will not receive any proceeds from the Offer for Sale.
2) The Fresh Issue: The Net Proceeds from the Fresh Issue will be utilised towards the following objects:
a) Capital expenditure towards payment of salaries and wages of research and development team;
b) Working capital requirement; and
c) General corporate purposes.
Company Financials (reinstated-consolidated)
- The company generated revenue of Rs 201.4 Crores for the year ended Mar-12 and Rs 627.4 Crores for the year ended Mar-16. For 6 months ended Sep-2016, it generated revenues of Rs 350.7 Crores.
- The company posted a Loss of Rs 92.8 Crores for the year ended Mar-12 and profit of Rs 29 Crores for the year ended Mar-16. For 6 months ended Sep-2016, its profits are Rs 16.4 Crores.
- Its restated basic EPS for FY ending Mar-16 is Rs 4.71 and last 3 years EPS was Rs 1.46.
What are Tejas Networks Competitive Strenghts?
Here are the company Competitive strenghts.
- Its end-to-end portfolio of optical networking products positions us well to take advantage of the expected industry growth
- Leadership in the fast growing Indian optical equipment market
- Track record and culture of innovation leading to product and technology leadership
- Software-defined hardware with ease of use
- Cost and capital efficient business model
- Long standing customer relationships with strong repeat business
- Strong professionally managed team with significant industry experience
Also Read: Where to invest your money in India?
Reasons to invest in Tejas Networks IPO
- Strong revenue growth in last few years. Company revenues grew at 33% CAGR in last 5 years.
- Strong brand in various states in India.
Reasons not to invest in a Tejas Networks Ltd IPO
- It earns low profits of over 4.5% in last 1.5 years. It incurred losses in FY12, FY13 and FY15. It incurred 0.7% profits in FY14. Investors should invest in consistent profit making companies so that they would get rewarded.
- Company is involved in certain legal proceedings, any adverse developments related to which could materially and adversely affect Its business, reputation and cash flows.
- Its results of operations are subject to significant fluctuations and seasonality.
- A significant portion of Its revenue is generated from Its limited number of large customers and if they are unable to maintain Its relationship with such customers, Its business, results of operations and financial condition will be materially and adversely affected. Furthermore, these large customers exercise substantial negotiating leverage with us, which could adversely impact Its results of operations.
- The networking equipment market is characterised by rapid technological changes, and if they are unable to keep abreast of the technological changes and new product introductions, Its business and financial condition may be adversely affected.
- The market for networking equipment is highly competitive, and if they are unable to compete effectively, Its business, prospects and results of operations may be materially and adversely affected.
- If they are unable to attract or retain key personnel, Its business may be adversely affected.
- They rely on a limited number of third party suppliers and EMS companies for Its key components and products. If such third parties fail to deliver the components and products in a timely manner or meet Its specifications, Its ability to meet Its product delivery and quality obligations will be undermined and as a result, Its business, reputation and results of operations will be materially and adversely affected.
- If they are unable to successfully execute Its growth strategies, Its business, prospects and results of operations could be materially and adversely affected.
- The sales and deployment cycles for Its products are variable in nature and are likely to cause Its quarterly revenues to fluctuate materially.
- Other risk factors (Internal and external) can be viewed in the draft prospectus.
Recommendation / Investment strategy – Tejas Networks IPO
On the upper price band of Rs 257 and on consolidated FY16 EPS of Rs 4.71, P/E ratio works out to 54.5x. Even based on last 3 years consolidated EPS of Rs 1.46, P/E ratio works out to be 176x. Means company is asking higher price band of Rs 257 in the P/E ratio of 54x to 176x. There is no listed peers to compare, hence we cannot say whether the issue price is over priced or under priced. However, considering low profits or losses incurred in last few years, the 3 years average EPS is low. Considering this point, P/E ratio is high and the issue price is highly priced.
Company revenues grew at 33% CAGR in last 5 years which indicates strong performance. It started generating profits in the last 1.5 years only. Tejas Networks IPO price is highly priced. I would have been exicted if company issue price is on lower side. Personally, I would like to stay away from such highly priced IPO’s. After listing, if the share price drops, I would like to invest in such IPOs.
Disclaimer: I do not have an interest in investing in this IPO. The idea of giving positive and negative factors to investors in this article is to create awareness and education about this IPO. One should NOT constitute this as investment advice to buy. Please consult your investment advisor before you invest in such high risk investment options.
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Tejas Networks IPO – What are the hidden factors