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.
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