Just when Diwali is around the corner, the IPO markets are seeing renewed action after a few months of silence. In this regards, an asset-light technology company by the name Tracxn Technologies Limited has come up with its IPO issue. The IPO price band has been fixed at ₹75-80 per share and the IPO subscription period will remain open from 10-12 October, 2022. Minimum lot size for subscription is 185 shares. The retail portion of the IPO is 10%.
About the company
Tracxn Technologies Limited is a Bangalore-based company which offers data on private companies on a subscription based model. It offers private company data for applications such as identifying merger and acquisition targets, deal sourcing, due diligence, analysis, and to identify new trends across sectors and markets. The company has a large coverage of private companies in emerging sectors such as artificial intelligence, virtual reality, robotics, blockchain, and electric vehicles.
The company has an asset light business model and operates software as a service (Saas) platform. The company’s customer base includes venture capitalists and private equity investors, investment banks, corporates, and government agencies. The company’s customers include a number of Fortune 500 companies and their affiliates. The company’s platform was launched in 2015.
According to the company’s DRHP, the total addressable market for private market data is poised to grow at 12% annually by 2025 from current $1.3 billion to $2.1 billion.
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Tracxn Technologies Limited IPO Details
|Issue Open Date||October 10, 2022|
|Issue Close Date||October 12, 2022|
|Issue Type||Book Built Issue|
|IPO Size||₹309 Cr (approx.)|
|Fresh Issue||₹309 Cr (approx.)|
|Face Value||₹ 1 Per Equity Share|
|Price Band||₹75 to ₹80 Per Equity Share|
|Listing Exchanges||BSE and NSE|
Objectives of the IPO
Through the IPO, Tracxn Technologies Limited will raise ₹309 crore, which is fully an offer for sale component. This means that promoters are offloading their stake and no proceeds from the IPO will go to the company to invest in its business. After the IPO, the promoter’s stake will fall from 50.9% to 35.7%.
Following are the key risks in the company’s business:
- The growth in the company’s revenues is dependent on the merger and acquisition deals that take place in the economy. These deals may slow down during times of economic distress.
- Barring a modest net profit of ₹84 lakh in Q1 FY23, the company has not posted a net profit on an annualized basis. Hence, the road to profitability is not clear.
- The customers of the company have the right to terminate the subscription following a one month notice period. This may lead to a fluctuation in revenues.
- The company has experienced high employee attrition rate in the past and have had to incur high employee costs to counter the same.
- The company generated negative operating cashflows in FY20 and FY21, and posted a modest positive operating cashflow in FY22.
Following are the key strengths in the company’s business:
- Tracxn Technologies Limited has global clients and counts itself to be among the top five global service providers in its domain based on the number of profiled companies.
- The company’s platform has 3271 users across 1139 customer accounts in about 58 countries as of Q1 FY23.
- The number of entities that Tracxn Technologies Limited profiled on its platform increased at a CAGR of 37% from 937698 in FY20 to 1.76 million in FY22.
- The company’s customer base has increased to 1139 as of June 2022 from 642 as of FY20.
- The company’s business is asset light, which is beneficial in times like a global pandemic as fixed costs are lesser.
Fundamentals of the company
Following are the fundamentals of the company:
- The company’s revenue from operations increased from ₹37.3 crores in FY20 to ₹63.5 crore in FY22.
- The company reported a net loss in the previous three financial years.
- In Q1 FY23, the company reported a modest profit of ₹84 lacs in comparison with a loss of ₹72 lacs in the same period last year.
- At the upper band of the IPO issue price, the company’s market cap turns out to be ₹803 crore.
- The company had no debt on its balance sheet.
- As the company posted net losses in the previous three financial years, its earning per share and return ratios were negative as well.
On the valuation front, determining the PE ratio for the company is not possible since it has not posted a full-year profit yet. Based on the company’s revenues, it trades at a price-to-sales (P/S) multiple of 12.3x based on FY22 sales. It’s forward P/S ratio based on annualized June 2022 revenues stand at 10.5x.
According to the IPO issue prospectus filed by the company, it has no listed peers that are engaged in a similar line of business as the given company. Hence, a peer comparison will not be possible in this regards.
To conclude, the company’s IPO is fully an offer for sale through which the promoter is offloading his/her stake. No proceeds from the IPO will flow to the company’s business. This is not an attractive signal. Also, the company is not yet profitable. Hence, investors can avoid this IPO and invest in the company’s shares only after it establishes a road to profitability!