IPO Analysis : Fatpipe Networks india Limited

The Chennai-based inventor and multi-patent holder of router clustering technology FatPipe Networks will enter the capital market with an initial public offering of Rs 490 crore. The issue will open on June 7 and will close on June 9.

Fatpipe's core, router clustering technology involves patented and patent-pending methods that provide highest level of optimization, reliability, security and acceleration of wide areas network (WAN). The price band for the issue has been fixed at Rs 82-85 a share.

The proceeds from the issue will be used to expanding its product line with enhanced research and development activities.

The company is also looking at establishing 16 new marketing offices across the globe including additional offices in the US and is also aiming at strategic acquisition of business.

Issue Details 

Issue price / Floor Price (Rs)	82-85
Issue opens	07-Jun-10
Issue closes	09/06/10
Issue size (Rs cr)	49
Total Income	45.91
Net profit (Rs Cr)	5.2
Borrowings (Rs Lakh)	68.71
Book value (Rs)	28.82
EPS (Rs)	6.46
PER (X)	12.69 – 13.16
Website	www.fatpipe.com

Overview
 
The Company was incorporated on December 24, 2002 as a Private Limited Company with the name of Fatpipe Networks India Private Limited. The Company was converted into a public limited company and its name was changed to Fatpipe Networks India Limited with effect from September 6, 2008.

The company is planning to raise Rs 49 crore through this issue. Fatpipe Networks India has fixed a price band for its IPO at Rs 82-85 a share. 

It provides global corporations and government offices with technology that increases the security and reliability of Wide Area Networks, corporate extranets, Virtual Private Networks and all last-mile Internet connections, including wireless connectivity.

The company holds patents on a technology called 'Router-Clustering', which enables customers to obtain highly redundant and fast Internet/WAN access.

Promoters and their group hold 37.29% stake in the company. Major shareholders like Sanchaita Datta, vSpring Management and Ragula Bhaskar have over 16% stake each in the company.

Issue proceeds will be used for expanding the product line with enhanced research and development activities, specifically for development of new product-lines; for establishing 16 new Marketing Offices across the globe including additional offices in the USA; for strategic acquisition of business/ company and for margin money for working capital requirement. The company estimated cost for above objects at Rs 6.76 crore, Rs 10.08 crore, Rs 15 crore and Rs 7.2 crore, respectively.
 
Objects of the issue 

The objects of the Issue are primarily to raise capital for the following business and operational requirements of the Company:

• To expand the product line with enhanced Research and Development activities, specifically for development of new product-lines.
• To establish 16 new Marketing Offices across the globe including additional offices in the USA.
• For strategic acquisition of business/ company
• To meet margin money for Working Capital requirement and
• To meet the Public Issue Expenses
• General Corporate Purposes
• To get the equity shares of the Company listed on the Stock Exchanges

Competitive Strengths

• Fatpipe's core, router clustering technology involves patented and patent-pending methods that provide highest level of optimisation, reliability, security and acceleration of wide areas network (WAN).

• Management’s experience and understanding networking industry, large customer base in US.

• The Company’s management believes that its technology reflects the current state of the art for highly redundant and reliable systems for intra-corporate communications and Continued growth of Internet usage and infrastructure is the key for growth of the company.

• The company has a wide range of products in its portfolio with unique features. These products span different market segments like reliability, security and WAN Optimisation. In the global marketplace, the multi-location products, MPVoIP, Symphony, MPVPN and IPVPN are developed and marketed by the company. The company does not face any direct competition for these products.

• The Company’s market is new and rapidly growing. Internet usage is growing globally at an exponential pace and this growth is foreseen for a number of years. As Internet usage grows, infrastructure may not be able to keep up and support demands placed upon it. This may result in Internet usage not growing materially and adversely affecting the Company’s growth.

Areas of concerns

• The Computers Networking industry is evolving rapidly and it is a challenge to keep up the pace. The Company’s failure to respond in a timely manner to changing market dynamics or client requirements would have a material adverse affect on its business, prospects, financial conditions and results of operations.

• The competitors and other players in the industry may develop or purchase comparable or superior technology.

• For the Warp product, there are a few companies that copy and market similar products. The competitors for the Xtreme and WARP products are Astrocomm, Xroads Networks, F5 networks and Radware. 

• The traditional WAN Optimization market segment has competition from Blue Coat, Riverbed and Cisco.

Financial Highlights

• The net worth of the Company as of 31st December, 2009 was Rs. 3589.08 lakhs based on audited financial statements of the Company.
• Promoters (Dr. Ragula Bhaskar and Ms. Sanchaita Datta) total Shareholding is 37.29%.
• The book value per Equity Share as on 31st December, 2009 was Rs. 28.82.

Statement of Profit and Losses (Rs in Lakh)

Particulars	Dec 2009 (9 months)	31 Mar 09	31 Mar 08	31 Mar 07	31 Mar 06	31 Mar 05
Total Income	4591.38	4229.6	316.21	222.72	119.38	64.47
Total expenditure	3786.28	3804.99	295.92	190.96	112.33	60.5
Net Profit before tax and extraordinary items	805.1	424.61	20.28	31.76	7.05	3.97
Net Profit after tax and extraordinary items	520.09	399.37	16.99	30.58	6.44	3.97

Return on Net worth (RONW %)

Particulars	RONW (%)	Weight
31st March 2007	33.72	1
31st March 2008	15.77	2
31st March 2009	11.73	3
Weighted Average	16.74

Basic Earnings per Share

Accounting year ending	EPS (rs)	Weight	Paid up Capital (Rs. in lacs)
31st March 2007	5.29	1	1.00
31st March 2008	2.94	2	1.00
31st March 2009	6.46	3	1,302.65
Weighted average EPS	5.09

The EPS as on 31/12/2009 is Rs.3.99.


Price Earnings Ratio (P/E Ratio) in relation to issue price.

Particulars	P/E (at lower end of price band)	P/E (at higher end of price band)
Based on pre-issue weighted average EPS of Rs. 5.09	16.11	16.7
Based on pre-issue EPS for FY 2008-09 of Rs.6.46	12.69	13.16

 


Comparison with Industry Peers

Comparison of accounting ratios of the Company with industry composite and the accounting ratios of peer group for financial year 2009.

Name of the Company	Face Value (Per equity share)	Equity Share Capital (Rs Crs)	Sales as on 31/03/2009 (Rs. In Cr.)	RONW (%)	Book Value (Rs)	EPS (Rs)	P/E Multiple based on Price as on 30/04/2010
Cyberteck System and Software Limited	10	26.47	12.8	14.1	19.1	2.5	7.28
Micro Technologies (India) ltd	10	10.98	230.7	26.6	243.1	56.8	3.36
Mindteck (India) limited	10	24.76	54.4	3	54.1	1.4	20.61
Redington India Limited	10	78.63	6066.2	13.6	78.3	10.3	37.14
Smartlink Networks Ltd.	2	6	156.7	3.9	48.6	2.2	20.41
Softpro Systems Limited	10	7.28	0.7	11.2	44.5	3.4	81.1
Subex Ltd.	10	57.98	301.1	49	108.5	4.1	15.11
Take Solutions Limited	1	12.24	59	5.1	19.5	1	26.9
Tanla Solutions Limited	1	10.15	172.4	12	64.4	7.1	6.3
Trigyn Technologies Ltd.	10	25.03	21.1	14.11	29.2	3.9	5.49
Vakrangee Softwares Ltd.	10	21.4	294.3	19	125.6	23.8	6.86
Fatpipe Networks India Ltd.	10		42.3	11.73	55.12	6.46	-

IPO Grading

The issue has been graded by Brickwork Ratings India Pvt. Ltd. (Brickwork) and has been assigned the “BWR IPO Grade 2”, which indicates below average fundamentals for the issue in relation to the listed peers.

The grading factors FNIL’s track record in US market, management’s experience and understanding networking industry, large customer base in US. However, the grading is constrained by FNIL’s scale of operations in the country, competitive nature of the industry, threat of substitute products, and high share of intangible assets in total fixed assets.

Valuation and Verdict 

Company have patented products, have experience in networking industry, and large customer base in US. Investors with risk appetite can subscribe the issue for long term gain.

Satluj Jal Vidyut Nigam IPO Analysis

Hydro power generator Satluj Jal Vidyut Nigam (SJVN) is coming out with an initial public offering (IPO) of 41.5 crore equity shares on April 29, 2010. The offer will close on May 3, 2010. The price band for this issue is expected to be around Rs 30 per share, reports CNBC-TV18 quoting sources.

The offer comprises a net offer to the public of 411,650,000 equity shares and a reservation of 3,350,000 equity shares for purchase by eligible employees at the offer price. The offer shall constitute 10.03% of the paid-up equity capital of company.

The shareholding stake of President of India, acting through the Ministry of Power, Government of India will be reduced to 64.47% from 74.50% post issue. The Governor, State of Himachal Pradesh holds 25.50% stake in the company.

Issue Details

Issue opens	29 Apr 10
Issue closes	3 May 10
Issue Size	415,000,000 equity shares.
Face Value	Rs. 10/-
Price Range	Rs.23 to Rs 26.
Market Lot	250 equity shares
Minimum Order Quantity	250 equity shares
Maximum Subscription Amount for Retail Investor	100000
IPO Grading	IPO Grade 4/5
Rating Agency	CARE

Note : Retail investors will get shares at 5% discount to offer price. 

Overview

SJVN is a hydroelectric power generation company originally established as a joint venture between the Government and the state government of Himachal Pradesh to develop and operate the NJHPS. Based on information published by the CEA, the NJHPS is currently the largest operational hydroelectric power generation facility in India based on installed capacity, with an aggregate generation capacity of 1,500 MW, and is located on the Sutlej River in the state of Himachal Pradesh.

They are currently constructing the Rampur Project, which is expected to be a 412 MW hydroelectric power generation facility located downstream from the NJHPS. The Rampur Project is currently projected to be completed and commissioned in 2013. 

Also been awarded the rights to develop and operate two hydroelectric projects with an expected aggregate generation capacity of 825 MW by the state government of Himachal Pradesh (in each of which we are expected to have a 51% participation interest).

It is this value system that SJVN has carried to its next big project, the 412 mw Rampur Hydro Electric Project (RHEP), which is a run of the river project and will use the tail race waters of the NJHEP. Construction for RHEP, located in Shimla district, has commenced and the project is expected to be commissioned by 2012.

In the 12th Five Yesr Plan, SJVN will also complete the Luhri Hydro Electric Projects in Himachal Pradesh and the Devsari, Naitwar Mori and Jakhol Sankri Hydro Electric Projects in Uttaranchal. A project in Sikkim is in the pipeline. By the end of the 11th plan, SJVN aims to be a 4, 000 mw company.

Through its various projects, they are expected to increase total installed power generation capacity by approximately 3,588 MW.

Projects

The following table sets forth a summary of projects under operation, construction, development and implementation:

	Project	State/Country	Installed Capacity (Actual/Anticipated)
Operational project
	NJHPS	Himachal Pradesh, India	1,500 MW
Project under construction
	Rampur	Himachal Pradesh, India	412 MW
Projects under development / implementation
	Luhri	Himachal Pradesh, India	775 MW
	Dhaulasidh	Himachal Pradesh, India	50 MW(3)
	Devsari	Uttarakhand, India	252 MW
	Naitwar Mori	Uttarakhand, India	60 MW
	Jakhol Sankri	Uttarakhand, India	51 MW
	Arun-III	Nepal	900 MW
	Tipaimukh	Manipur, India	1,500 MW
Others
	Transmission JV	Nepal/India	N.A.

 

Objects of the issue

The purpose of the offer is to achieve the benefits of listing on the stock exchanges and company will not receive any proceeds from the offer.


Competitive Strengths

1. Experienced in the development, execution and management of mega-hydroelectric projects through our development and operation of the 1,500 MW NJHPS, which is the largest hydroelectric power generation facility in India based on generation capacity.
2. Since the commissioning of the NJHPS, consistently met or exceeded Government-set performance targets for our operations, and have been upgraded to a Schedule A public sector undertaking and designated as a Mini-Ratna Category-I public sector undertaking in recognition of our efforts.
3. Stable revenue stream through long-term power purchase agreements with state electricity boards and distribution licensees. Currently have ten power purchase agreements with state utilities in the Northern region of India.
4. With effect from January 2011, we may be required to sell electricity generated at our new projects through competitive tender processes conducted by distribution licensees for long term procurement of power.
5. Strong cash position to support project development and operations.
6. Adding approximately 3,588 MW to our aggregate generation capacity through the development of existing pipeline of projects.

1. Financial performance is dependent on the NJHPS (located in the state of Himachal Pradesh on the Sutlej River), which is the only operational project,
2. Sales of electricity are regulated by directives issued by the Government and are subject to prevailing tariff policies and regulations.

Financial Highlights

For the period of nine months ended of December 2009, it has reported net profit of Rs 775.37 crore on total income of Rs 1,510 crore; it has debt of Rs 1,769.90 crore on its books.

The net asset value per Equity Share of Rs.10 was Rs. 16.45 each as at December 31, 2009.

Key Ratios	For the Nine months ended Dec, 2009	2009	2008	2007	2006	2005
Earning Per Share (Rs.)	1.89	1.85	1.74	1.58	1.42	1.45
Return on Net Worth (%)	11.47%	12.50%	12.60%	12.36%	11.99%	13.17%
Net Assets Value per Share (Rs.)	16.45	14.79	13.85	12.8	11.88	10.9

 

Power Generation Industry P/E
Highest	317.3
Lowest	11.2
Industry Composite	21.2

Comparison with Industry Peers

Name of the Company	Face  Value (Rs)	EPS(Rs)	RONW% For Fiscal 2009	Book Value as on March 31, 2009	PE Multiple
SJVN Limite	10	1.85	12.50	14.79	*
JP Power Ven	10	0.60	13.60	12.80	-
KSK Energy Ven.	10	1.80	5.20	66.10	137.7
NHPC	10	0.80	6.10	17.90	23.5

 

Company, FY 09	Long Term Debt (Rs Mn)	Equity	Debt   Equity    ratio
SJVNL	17,463.70	4540.56	0.26:1
JP Power Ventures*	7,411.7	10,751.5	0.69:1
KSK Energy Ventures, (consl.)	20,375.7	19,821.2	0.46:1
NHPC	82,123.8	179,806.2	0.46:1
Average			0.72:1

IPO Grading

CARE has assigned "GRADE IPO Grade 4", which indicates above average fundamentals.

Valuation and Verdict


Empowered Group of Ministers (EGoM) has fixed IPO price band at Rs 23-26 per share, reports CNBC-TV18. On this price band PE ratio comes 12.43 to 14.05, which looks attractive.