Fatpipe Networks India entered the capital market on
The company provides router clustering products for Wide Area Networks (WAN), which are assembled and marketed primarily in US. It is looking to expand its markets to
The objects of the issue looks very structured - of the Rs. 49 crores planned to be raised, Rs. 15 crores is to be used for strategic acquisitions. However, the company is yet to identify the companies / businesses to be taken over. Another Rs. 7.2 crores is to be used towards working capital, despite the cash and bank balance of Rs. 5.02 crores, appearing on its books, as on
Moreover, Rs. 6.8 crores and Rs. 10.1 crores is to be used for product R&D and setting-up of 16 marketing offices across the globe, respectively. The full benefits of these will not accrue during FY11 and will get reflected only in FY12 results and onwards. Hence, FY11 will have expanded equity base, but will not be EPS accretive.
The company's IPO has been graded a "2" implying below average fundamentals. For 9 months ended
The company has over 120 employees, of which 50% are in sales and marketing, and its staff costs for 9 months ended 31st December 2009 was Rs. 12.5 crores i.e. annual wage bill of Rs. 17 crores or Rs. 14 lakhs per employee - a hardware company paying 28% of its sales as salaries is unheard of! Not to mention the fat pay-check of Rs. 1 crore each, that the two Promoter Directors of the company, draw annually.
Likewise, the company incurred selling and marketing expenses of Rs. 15.8 crores for 9 months ended
The company also has some operation and regulatory hurdles before it. RBI regulations, restricting the quantum of funds that can be remitted by the company to its
On the intellectual property and potential competition front, it has 7 product patents, which are only in the
This looks to be a structured IPO, just to raise funds. The fundamentals do not justify the valuations. It remains a clear avoid, even after the price revision.