Tracxn Technologies IPO: 5 Things to Know About this SaaS based Platform

Have you ever been to a shop opening? I have a lot of times and my favourite part about them is the free ice-cream or any food they offer.

Jokes apart, a shop opening ceremony is similar to an initial public offering (IPO).

Figuratively, in a shop opening ceremony, the shop owner invites his friends and relatives, among others, to celebrate his new venture. But coming to literal terms, a shop owner invites people that will bring him some business.

In the opening ceremony, all those invited buy something and the owner sells it for a little discount. Hence, this is a win-win for both. The owner gets customers, and the buyer gets good products for low prices.

Similarly, in an IPO, the company invites public investors to subscribe for the shares offered and they buy shares hoping for listing gains or gains in the long term (depending on the investment horizon).

However, investors need to be careful because not all IPOs will be investment worthy and can result in listing losses too. Paytm IPO is a prime example of that.

In recent weeks, Indian share markets have recovered a bit and resultantly, companies waiting on the sidelines with their IPO approvals have come out with their public offers.

Last week, we saw Electronics Mart IPO successfully raise funds. The IPO was a huge hit and received massive response worth Rs 265 bn as against the IPO size of Rs 5 bn.

This week, another company Tracxn Technologies has decided to raise funds via IPO.

The company's IPO opened for subscription on 10 October, i.e., today. Here are the key details.

Issue period: 10 October 2022 to 12 October 2022

Issue size: Rs 3,093.8 m (offer for sale for Rs 3,093.8 m)

Price band: Rs 75 to Rs 80 per equity share

Face value: Rs 1 per equity share

The company has reserved not less than 75% shares of the offer for qualified institutional buyers (QIB). It has reserved not less than 15% for non-institutional buyers (HNI). Hence not more than 10% of shares are available for retail individual investors.

Tentative IPO allotment date: 17 October 2022

Tentative listing date: 20 October 2022

Here are 5 important details about Tracxn Technologies IPO.

#1 About the company

Founded in 2013, Tracxn Technologies provides market intelligence data for private companies. The company's extensive global database, customized solutions and features allow its customers to source and track companies across sectors and geographies to address their requirements.

The company is ranked among the top five players globally in terms of the number of companies profiled offering data on private market companies across sectors and geographies. The company has an asset-light business model, and it operates a Software as a Service (SaaS) based platform.

The company offers private company data to its customers for deal sourcing, identifying M&A targets, deal diligence, analysis, and tracking emerging themes across industries and markets, among other uses.

#2 Financial position

Tracxn is way far from being profitable. Surely, a tech company with a pile of losses makes you think of Zomato and Paytm. Both these companies have eroded investors' wealth to a great extent.

However, Tracxn's revenues have been increasing steadily and the growth is washed off by a sharp rise in expenses. At present, expenses are higher than its total revenues. This certainly raises a red flag.

Financial snapshot

Particulars (Rs in m)	31-Mar-22	31-Mar-21	31-Mar-20
Revenues	634.5	437.8	373.3
Revenue Growth (%)	44.9	17.3
Expenditure Before Tax	655.1	610.9	603.5
% of Total Income	100.5	109.6	161.6
Net Profit	-48.5	-53.7	-540.3
Net Profit Margin (%)	-7.4	-9.6	-144.7
Net Worth	206.4	222.2	-1352.4
Return on Net Worth (%)	17.4	11.9	18.8
Basic Earnings per share (Rs)	-0.5	-0.6	-5.5

Data Source: Company's Red Herring Prospectus (RHP)

#3 Peer comparison

According to Tracxn's red herring prospectus, there are no listed peers which have the same business as Tracxn.

While it has no listed peers, the company faces competition from private players such as Crunchbase, CBInsights, PrivCo & Pitchbook.

#4 Arguments in favour of the business

• It is one of the leading global providers of differentiated private market data and intelligence.
• It has a diverse, longstanding and growing global customer base.
• It has a scalable and secure technology platform conceptualized and developed in-house.
• It has significant cost advantages from India-based operations; and,
• It has a team of experienced promoters, a board of directors and senior management, backed by marquee investors.

#5 Risk factors

• Tracxn uses open-source software. In the future, if someone claims ownership of such software, Tracxn will have to re-engineer its platform.
• Like any IT firm, it faces a major cyber-attack threat.
• It has a history of reporting negative cash flows and losses.
• It had not insured its systems. For an IT firm its systems are of critical importance, hence leaving them uninsured is a big risk.
• Data is of utmost importance to the company. If it fails to procure accurate data or if there are data breaches, the company will lose customers.

To conclude

From falling 700 points one day to rising 1,000 points the other (for BSE Sensex), Indian share markets have witnessed a lot of volatility. Even companies with deep pockets have felt the backlash.

Even fundamentally strong companies were not spared which raises the question about how a loss making IT company will survive in a volatile market...

Tracxn has huge losses and negative cash flows on its books.

At the upper price band, the IPO values the company at Rs 8 bn while its annual revenues stand at around Rs 0.7 bn.

In its nine years of existence, the company has hardly reported any profits.

The IPO is also purely an OFS, which means the company won't get any proceeds, but the promoters and investors will look to exit.

It appears the promoters are looking to exit at a high valuation while other marquee investors will also benefit.

Ratan Tata, Flipkart's Bansal, Delhivery's Sahil Barua, among other marquee investors have a stake in the company.

For IT companies, attrition remains a concern. Tracxn is no exception. Attrition is at elevated levels at 49% for Tracxn.

A silver lining is the company recently turned profitable in the June 2022 quarter after being in losses for more than three years.

It remains to be seen how a loss making company excites investors with its asset light business model and a SaaS platform.

Stay tuned to get further updates on this IPO and all upcoming IPOs in the market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...