Tejas Networks raises Rs349.5 crore from anchor book allocation
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Mumbai: Telecom equipment maker Tejas Networks Ltd Tuesday said it has raised Rs349.5 crore by selling shares to investors as part of the so-called anchor book allocation, a day ahead of the opening of its initial public offering (IPO).
The anchor book is that portion of an IPO that bankers can allot to institutional investors on a discretionary basis. Anchor book subscription opens a day before the launch of an IPO and acts as an indicator of institutional investor interest.
In a statement, Tejas Networks said 13.59 million shares were allotted to 17 anchor investors at Rs257 each, the upper end of its IPO price band of Rs250-257.
At the top end of the price band, the Bengaluru-based company aims to raise Rs450 crore through a fresh issue of shares, constituting 19.55% of its post-issue paid-up equity capital. Existing shareholders will also sell shares worth Rs326 crore in the IPO. Tejas plans to use the proceeds for working capital, capex and for general purposes. The three-day IPO, which opens on Wednesday, is the first by an Indian telecom equipment manufacturer.
Foreign investors Abu Dhabi Investment Authority, Eastbridge Capital Master Fund, Amansa Holdings Pvt. Ltd, Amundi Funds and Driehaus Emerging Markets Smallcap Growth Fund, and domestic investors Reliance Small Cap Fund, Premji Invest, SBI Life Insurance Co. Ltd, Reliance Nippon Life Insurance Co. Ltd, Exide Life Insurance Co. Ltd and Kotak Infrastructure and Economic Reform Fund were allotted shares. Analysts are positive about the IPO mainly since there are no listed peers, though opinions on valuations differ.
At Rs257 a share, the pre-issue price to earnings (PE) works out to be 29.3 times its 2017 earnings and 3.7 times the FY2017 book value, Angel Broking Pvt. Ltd said. Its debt-free balance sheet and the Digital India push will support growth, the broking firm said.
“The return on equity (RoE) improved to 12.9% in FY2017 from 8% in FY2016 primarily owing to ongoing capex on optical network by telecom companies, strong operating leverage with asset light business and strong professional team with significant industry experience,” Jaikishan J. Parmar, research analyst (midcaps), Angel Broking wrote in a 13 June report.
Tejas Networks could benefit from high-speed Internet technologies, proliferation of powerful networking devices and smartphones, growth in enterprise cloud services and data, and gaming and high-definition videos which would require telcos to upgrade networks, the report added.
GEPL Capital Pvt. Ltd said Tejas Networks stands to gain from operating leverage. “At a PE of 27.34 times of FY17 earnings per share (EPS), it demands a discount to its domestic peers,” it said in a 12 June report. It said a significant portion of the company’s revenue being dependent on a limited number of large customers is risky. However, Hem Securities Ltd said though its business model looks quite attractive, the issue looks expensive.
Tejas Networks sells products to telecommunications and Internet service providers, utility companies, defence companies and government entities in India and over 60 countries. It derives 63% of its revenues from domestic markets, while the rest comes from international markets.
According to the firm’s red herring prospectus, its competitors include end-to-end telecom equipment manufacturers such Huawei Technologies Co Ltd, Nokia, ZTE Corp., and Ericsson, specialized optical network equipment providers such as Ciena, Coriant, Fiberhome, Adtran, Adva, ECI, UTStarcom and Infinera and Ethernet switches and IP router providers such as Cisco and Juniper.
With a market share of 15%, Tejas Networks is the second largest optical networking products company in India. Its revenue has grown to Rs878 crore in FY2016 from Rs369 crore in FY2013, showing a four-year compounded annual growth rate of 24.2%. In 2016-17, it reported a net profit of Rs63 crore, against a Rs79 crore loss in FY2013. Ebitda margins have also improved to 19.8% in FY2017 from 12% in FY2013. Ebitda is earnings before interest, tax, depreciation and amortization.