IPO Size: Rs. 1,336 cr (75% reserved for institutions, as loss making)
- 70% is offer for sale (OFS) by TA Associates/Wagner (trimming 23% holding to 5%) and by promoters (67% stake to drop to 57%)
- Rs. 375 cr fresh issue for Rs. 85 cr debt repayment, Rs.41 cr data centre capex, Rs. 80 cr future acquisition, Rs. 50 cr organic growth, Rs. 25 cr payment for past acquisition
Price band: Rs. 405-425 per share
Mcap: Rs. 4,537 cr, implying 29% dilution
IPO Date: Tue 7th Dec to Thu 9th Dec 2021, Listing Fri 17th Dec 2021
Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.
- India’s largest Software-as-a-Service (SaaS) company in the hospitality and travel industry, serving hotels and online travel agents, with 65% of Rs. 300 cr revenue (FY21 proforma) coming from North America. Given the business model, it enjoys high customer stickiness, with gross revenue retention rate of 90%+.
- Growth through acquisitions and cross-sell: Market opportunity is as large as USD 8 bn and company has acquired 3 companies in past 4 years. It targets 25-30% organic growth in the medium term.
- Cash rich balance sheet with cash surplus of Rs. 80 cr pre-IPO and Rs. 166 cr post IPO. Low taxes for overseas businesses keeps effective tax rate very low.
- Low margins, despite 97% repeat business and scalable operations. Highest EBITDA margin reported by the company in past 3 years was in FY19 at 12.5%, with net margin of just 4.2%. Even during 5MFY22, when travel picked-up and company’s pro-forma revenue grew 40% YoY, EBITDA margin was just 5.2%, with net loss of Rs. 8 cr.
- Travel Curbs re-emerge: New virus strain Omicron has re-surfaced travel curbs globally, acting as a headwinds to revenue growth over the short-to-medium term, and also putting pressure on margin recovery.
- Rich Valuation: Even if FY23E revenue is assumed at Rs. 520 cr (pre-covid FY20’s 400 cr + 30% growth) and PAT margin is taken as 4.2% (same as FY19 margin since FY20 reported loss), PAT for FY23E works out to Rs. 22 cr, leading to PE multiple of 208x, which is extremely rich, as most optimistic scenario is considered for one-year forward earnings.
- Company raised Rs. 111 cr from PE Avataar at Rs. 145 per share in Aug and Oct 2020. After 15 months, 3x asking price is quite stretched, as the pandemic is not yet over, even if Avataar allotment was undertaken at the peak of crisis.