Tejas Networks Limited IPO - Apply or not?

TEJAS Networks IPO

Company Profile

Incorporated in year 2000, Tejas Networks Ltd is Bangalore based optical and data networking products company. Tejas design, develop and sell products to telecommunications service providers, internet service providers, utility companies, defence companies and government entities in India and over 60 countries. These products are used in building high-speed communication networks to carry voice, data and video traffic from fixed line, mobile and broadband networks over optical-fiber.

Tejas Networks build hardware and software products related to optical and data networking. The hardware is build using modular approach and the software-defined architecture allows the company to remotely upgrade the hardware with new capabilities and features. Tejas Networks outsource most of its manufacturing to electronics manufacturing services companies.

Tejas Networks offer pay-as-you-grow business model where its clients purchase its products/services incrementally as needed.

Tejas Networks Ltd have filed 326 patent applications, with 198 filings in India, 87 filings in the United States and 6 filings in Europe, out of which 47 patents have been granted.

Sanjay Nayak, CEO and MD of Tejas Networks, said the company will have a two-pronged approach.

Tejas Networks will increasingly work towards expanding in emerging markets like South East Asia, Africa, and Latin America. “These regions are like India where infrastructure is not there. And they also need to transform from voice-based to data,” he said.

Nayak said the company would also focus on its original equipment maker (OEM) business.

Issue Details

Issue Open: Jun 14, 2017 - Jun 16, 2017 

Issue Type: Book Built Issue IPO 

Issue Size: 

  --  Fresh Issue of [.] Equity Shares of Rs 10 aggregating up to Rs 450.00 Cr 

  --  Offer for Sale of 12,711,605 Equity Shares of Rs 10 aggregating up to Rs [.] Cr 

Face Value: Rs 10 Per Equity Share 

Issue Price: Rs 250 - Rs 257 Per Equity Share 

Market Lot: 55 Shares 

Minimum Order Quantity: 55 Shares 

Listing At: BSE, NSE

Tentative timetable in respect of the Offer:

Bid/Offer Opens On: June 14, 2017

Bid/Offer Closes On: June 16, 2017

Finalisation of Basis of Allotment: 

Initiation of refunds: 

Credit of Equity Shares to demat accounts: 

Commencement of trading of the Equity Shares on the Stock Exchanges:

DRAFT RED HEARING PROSPECTUS

What will the company do with IPO proceeds:

How has the company performed all this while:

The revenue of the company has shown continuous growth except for in the year of ending 31 March 2016, when it fell a little in comparison with preceding year. As such the current issue for quick earners is a good option, but need to consider various other factors, peers' performance and upcoming government policies if you want to hold it for long term.

Telecommunication sector is a volatile sector which is hugely affected by peer policies as well. With major portion of its revenue from India and considering Government's "Make In India" initiative one can expect the company to grow many folds in next 2-3 years. With 65% operations in India, Tejas also has 35% revenue from outside India.

Last financial year showed an increase in Tejas' EPS -

Another positive indicator is increasing operational cash flows -

More recent financials also indicate growth. As per the half-yearly financial ending September 2016, Revenue was Rs. 3648.78 millions as against Rs. 2162.28 millions for half year ending September 2015, an increase of approx. 68%. EPS also rose from 0.18 to 1.87 as per these comparable financials.
Same goes for Operational Cash flows as well, which noticed a growth of approx. 41%.

With EPS of 4.46 for the year ending March 2016, and average P/E of telecom-equipment sector being around 30, the issue is quite over-priced (suitable price would have been between 130-140).

NAV as per standalone financials as on 30 Sep 2016 was Rs. 64.87/- per share.

There is no condition of lock-in period for the promoter shareholders in present case. Also, an offer to sale has been made by existing shareholders of about 12.71 million shares. Intel Capital which holds 7.66% of stakes in Tejas is selling a part of it in this Offer, whereas Frontline holding 3.61% is fully exiting.

It's major fund raise has been from Goldman Sachs of Rs. 90 crores in 2007, which builds investors confidence on basis of Goldman Sachs' confidence in the enterprise.

There are no listed entities in India whose business portfolio is comparable with this business, this adds to its positive points. And with "Make In India" initiative, we can expect much more growth in comparison to current growth level

Tejas' CEO-cum-MD expects its revenues to grow 30% per annum for next 5 years.

What to expect from this IPO?

The share issue price is currently over-valued. But promising growth in profits, if stand up to expectations will change the prices in investors' favour. Can't surely expect a higher opening price, since it is highly over-priced and has weak financials.

Stock itself is going to be a long term bet, which if stands to its expected future returns might make the stock a multi-bagger, iff performance is upto mark.