Tejas Networks IPO Fully Subscribed. Should You Invest?

Tejas Networks initial public offer (IPO) was fully subscribed on the third day of the issue. As of 3:00 pm, it was subscribed 1.54 times with bids received for 2.63 crore shares against 1.71 crore share on offer. Tejas Networks plans to raise Rs 776 crore through the IPO, which opened on Wednesday and will close today. Investors can apply for the issue in a lot size of 55 shares. Tejas Networks on Tuesday raised nearly Rs. 350 crore from 17 anchor investors at Rs 257 per share.

Here are 5 things to know about the issue:

1) The Rs 776 crore IPO of Tejas Networks comprises fresh issue of Rs 450 crore and an offer for sale of Rs 326 crore by existing investors and management, who want to sell 1.27 crore shares to the public. Post the issue, promoters and institutional holding in Tejas Networks will come down to 66.2 per cent from 100 per cent now. Out of the issue proceeds of Rs 450 crore, the company plans to use Rs 303 crore for working capital requirement, Rs 45 crore for research and development and the remaining Rs 102 crore for general corporate purposes.

2) Set up in 2000, Tejas Networks is the second biggest player in the Indian optical equipment market. Its products are used to build high-speed communication networks that carry voice, data and video traffic, from fixed line, mobile and broadband networks over optical fibre. The company derives 63 per cent of its revenues from domestic markets, while the remaining comes from international markets.

3) Less than 20 per cent of cell towers in India are connected with optical fibre, as compared to 70-80 per cent in developed countries. Further, evolution of high speed internet technologies would require existing telcos to upgrade network capacities for higher data traffic, which augurs well for the growth of the company. Domestic brokerage Angel Broking says the optical network capex in India is likely to grow at 14 per cent compound annual growth rate (CAGR) over FY2014-20.

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4) Tejas Networks reported a net profit of Rs 64 crore on revenues of Rs 878 for FY2017. Its revenue witnessed a CAGR growth of 24.2 per cent over FY2013-17, while its bottom line improved from a negative of Rs 79 crore in FY2013 to a profit of Rs 64 crore in FY2017. Its return on equity has improved from 8 per cent in FY2016 to 12.9 per cent in FY2017 due to operating leverage and asset light model as it outsources most of its manufacturing to other electronics services companies.

5) At the upper end of the price band, Tejas Networks' shares are valued at 29.3 times its FY17 earnings and 3.7 times its book value. Angel Broking has a "subscribe" rating on the issue. "The company's debt free balance sheet post IPO coupled with the government's push for digital India would support the growth momentum," the brokerage said. High client concentration, some outstanding legal and tax proceedings to the tune of Rs 159 crore and currency fluctuations are key risks in the business of Tejas Networks, the brokerage said.

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