Tracxn Technologies Ltd: Take a call on post-listing opportunities

Tracxn Technologies Ltd is tapping the capital markets with its offer for sale of 3,86,72,208 equity shares in a price band of Rs75 to Rs80. At the top end of the band the issue would be for Rs309.38 crore. The issue opens on Monday (October 10) and closes on Wednesday (October 12). The issue has a reservation of 75 per cent for QIB's, 15 per cent for HNI's and 10 per cent for retail investors.

Tracxn Technologies is a leading global private market intelligence SaaS Platform and offers use of its vast database as a service on payment of requisite fees. Its average revenue is about Rs6.5 lakh and this is for three users, per year. 70 per cent of the company's revenues comes from overseas, while the remaining is from domestic. The database has 1.80 million entities which have been profiled, over 50,000 investor profiles and 5.20 lakh transactions which have been covered. It has 1,139 customers and the system is that revenues for the period of subscription are paid in advance.

The business of this company purely for purposes of understanding can be compared with Bloomberg which has a database of entities in the listed or public space. Tracxn has data in the unlisted space and hence getting data is that much more difficult. Currently Tracxn is ranked amongst the top five global players in terms of entities profiled.

The business being subscription based has multiple clients and there are no such things as top five or top ten customers. No customer contributes more than 1.5 per cent of revenues. The growth in customer accounts has been growing at a healthy 30 per cent plus number. The company works on an asset light model as it has no investments in gross block other than computers and such equipment. Its key asset is human resources. The larger part of the revenue comes in dollars (70%), while almost its entire expenditure is Rupee denominated. This gives it a clear cost advantage or arbitrage.

To mine data which is the key for Tracxn, they have developed an in-house data mining engine, which automatically tracks over 660 million domains across emerging technology sectors. To ensure minimum downtime, the database is hosted on cloud servers with in-built security features provided by the cloud infrastructure provider.

In terms of revenues, the company clocked Rs63.45 crore of revenues for the year ended March 22 which have increased to Rs18.40 crore at the end of the first quarter FY23. The company reported a loss of Rs4.85 crore for the year ended March 22. For the first quarter there is a marginal loss of Rs72 lakh. While the logical conclusion would be that the company would turn profitable going forward, the same may be some way away. This is because the present shareholding of the company includes about 10-11 per cent by way of ESOPs to employees. Looking at the dilution that would happen of the promoters stake and investors selling half their shares, it would be fair to expect employees to book profits from their ESOP holding as well.

The company is currently a loss-making company and is unlikely to become profitable in the immediate near future. The accounting entry on ESOP conversion would be a drag for some time. There would therefore be no EPS and hence no PE. The way to then value would be a multiple of sales which would be a steep 13.90 times based on fully diluted post ESOP equity. ESOPs outstanding are one crore shares, which have been issued at Rs1. In terms of expenditure almost the entire expenses are related to manpower and this is something which cannot be reduced.

Considering the fact that this is a new age company and growth may not exceed the present 30 per cent level, profitability would be some time away. It therefore makes sense to avoid the issue currently and look at it post listing and when clear visibility of the path to profitability is available.

Readers are advised to avoid the issue at application and look for better opportunities post listing.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)