Loss-making-company, accumulated deficit exceeding huge share premium amount collected from private investors, unassuming promoter stake, high profile investors’ total exit, etc., etc. make it a substandard investment proposition.

TRACXN TECHNOLOGIES OFFER AT A GLANCE
Offer Type	Book Built
Platform	Main Frame
Fresh Issue	Nil
Offer for Sale	38,672,208  equity shares (Rs 309.38 Cr)
Face Value	Re 1
Price Band	Rs 75 – 80
Mkt/Bid Lot	185 Nos.
Implied M-Cap	Rs 802 Cr
Equity Cap	Rs 10 Cr
Free Float	64.35%
Lead Manager	IIFL Securities
Registrar	Link Intime
Listing At	BSE, NSE

 

INDICATIVE ISSUE SCHEDULE
Opening          :  10-Oct-2022	Closing          : 12-Oct-2022
Allotment        : 17-Oct-2022	Refunding   : 18-Oct-2022
Demat Credit : 19-Oct-2022	Trading        : 20-Oct-2022

 

The Offer

The Bengaluru-based Tracxn Technologies Ltd is floating an IPO of 38,672,208 shares valued about Rs 309 Cr at the cap price. The IPO is, in fact, an offer for sale from the two promoters of the company and fifteen other shareholders. The offer is being made through the book-building route with a price band of Rs 75-80 for Re 1 paid-up share.

Applicants should bid for a minimum lot of 185 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE and NSE on October 20, 2022. IIFL Securities is acting as the sole manager to the offer and Link Intime has been roped in as registrar to the issue. The bidding opens on Monday, October 10 and closes on Wednesday, October 12, 2022.

The objects of the IPO are to achieve the benefits of listing the equity shares on the stock exchanges and to provide the exit route for the existing shareholders of the company. As per the amended shareholders’ agreement, the company had to facilitate the investment exit route before the end of November 2022.

Eligibility for the Offer

According to the Red Herring Prospectus, the company does not fulfil the requirements set out in Regulation 6(1) of the SEBI ICDR Regulations as it does not have net tangible assets of at least three crore rupees, an average operating profit of at least fifteen crore rupees and a net worth of at least one crore rupees in each of the preceding three fiscal years.

It had net tangible assets of Rs 135 Cr negative in fiscal 2020, Rs 22 Cr in fiscal 2021 and Rs 21 Cr in fiscal 2022.  It had operating losses of Rs 23 Cr, Rs 17 Cr and Rs 2 Cr for the fiscals 2020, 2021 and 2022 respectively. The average restated operating profit for the preceding three fiscals is negative Rs 14.13 Cr.

As the company did not fulfil the requirements under Regulation 6(1) of the SEBI ICDR Regulations, the present offer is being made in accordance with Regulation 6(2) of the SEBI ICDR Regulations,

Regulation 6(2) of the SEBI ICDR Regulations, states: “An issuer not satisfying the condition stipulated in sub-regulation (1) shall be eligible to make an initial public offer only if the issue is made through the book-building process and the issuer undertakes to allot at least seventy five per cent of the net offer to qualified institutional buyers and to refund the full subscription money if it fails to do so.”

Lineage

Tracxn was incorporated in 2012 by Neha Singh who had worked as an investment analyst with Sequoia Capital India Advisors. Neha’s spouse Abhishek Goyal staked in a year later. Towards the end of 2013 `Angel Investors’, including Flipkart founders Sachin Bansal and Binny Bansal, Delhivery co-founder Sahil Barua, among others subscribed to an aggregate of 107,244 equity shares  at a price of Rs 83.92 each.

The company’s first institutional funding was received in 2015 from Elevation Capital (previously known as SAIF Partners India). Subsequently, few individuals including Ratan Tata, private equity funds and trusts invested in the company at a price between Rs 450.05 and Rs 2955.48 a share. Until fiscal 2021 the company’s equity capital was just Rs 11 lakh. In July 2021, the CCPS were converted into equity which enhanced the capital to Rs 18 lakh. In August 2021 the company came out with a bumper bonus issue of 52:1 which brought down the maximum cost of holding from Rs 2955.48 to Rs 56.84!

Ironically, while the decade-old company has posted operating profit for the first time in Q1 of current fiscal, the promoters are reducing their stake from a controlling 50.93% to an unassuming 35.65%. Also, as many as nine Angel Investors, including the Flipkart founders, are completely exiting the company through the IPO.

Key Management

There are eight directors on the company’s board, of whom two are Executive Directors and six are Non-Executive Directors, including four Independent Directors. Promoter Neha Singh (37) is the Chairperson and Managing Director. She holds a bachelor’s and master’s degree in technology, with specialisations in computer science and engineering, from the Indian Institute of Technology, Mumbai.

Co-promoter Abhishek Goyal is the Vice Chairman and Executive Director. He holds a bachelor’s degree in technology, specialising in computer science and engineering, from the Indian Institute of Technology, Kanpur. He has previously served as a consultant with 3i Infotech and Erasmic Consulting, and has also worked with organisations such as Amazon Development Centre (India), Yahoo Software Development India, Accel India Management and Andale Information Technologies.

Stakeholders

Currently, the promoter-couple is holding 50.93% of the equity of Rs 10.03 Cr. Elevation Capital has 21.89% and 28 other people (consisting of angel investors, private equity funds, high net worth individuals and employees) hold 27.18%. Through the IPO the promoters are diluting 15.28%, Elevation is reducing its stake by a half (10.94%) and nine non-promoter shareholders including the high profile angel investors Binny Bansal and Sachin Bansal are offloading their entire stake of 10.15%.

Post-offer for sale, the promoters would hold only 35.65% and the largest non-promoter shareholder will have 10.95%. While the cost of IPO investor would be Rs 80 per share (at the cap price), the average residual cost of all the selling shareholders would be extremely negative which, in the absence of a supporting bottom line, is bound to attract heavy selling from existing shareholders post-lock-in period.

Business Track

Tracxn is claimed to be a leading global market intelligence provider for private company data and is ranked among the top five players globally in terms of number of companies profiled offering data of private market companies across sectors and geographies. The company claims to have one of the largest coverage of private companies in emerging technology sectors including IoT (internet of things), artificial intelligence, virtual reality, robotics, block chain and electric vehicles.

It reportedly operates a SaaS-based platform (Tracxn) that has scanned over 662 million web domains and profiled over 1.84 million entities across 2,003 Feeds as of June 30, 2022. Tracxn’s business prospects largely depend on the growth of number of PE, VC and other investment firms, large corporations and other entities who will be willing to invest in private companies.

Tracxn’s customer accounts have steadily increased from 642 in March 2020 to 1,139 by June 2022. Similarly, Users have increased from 2,075 in March 2020 to 3,271 Users in June 2022.

Financial Track

The decade-old Tracxn is yet to post a credible bottom line. Though the company has a respectable top line as compared to its equity capital, hefty employee costs have dragged the bottom line. As of June 30, 2022, the company had 808 full-time employees on its payroll.

Until June 2021, the company had minuscule equity capital of Rs 11 lakh. The bumper bonus issue in August 2021 enlarged the capital to over Rs 10 Cr. Though it was making losses, the company could collect share premium in excess of Rs 112 Cr.  Thus, on one side, it has hefty reserves, close to Rs 130 Cr, against the capital of Rs 10 Cr, and on the other side it has bulging accumulated deficits to the tune of Rs 117 Cr.

Tracxn Techno Financials (in Lakh)
Period Ended	Jun-22	Mar-22	Jun-21	Mar-21	Mar-20	Mar-19
Months	3	12	3	12	12	12
Revenue	1840	6345	1497	4378	3733	3319
Employee Cost	1617	5857	1426	5381	5128	4621
Employee Cost %	87.9	92.3	95.3	122.9	137.4	139.2
Operating Profit	19	-192	-62	-1706	-2245	-2059
OPM%	1.0	-3.0	-4.1	-39.0	-60.1	-62.0
Other Income	68	170	47	1196	-3102	3364
EBIDTA	86	-21	-15	-510	-5347	1305
EBIDTA %	4.5	-0.3	-1.0	-9.1	-846.9	19.5
Depreciation	2	15	4	25	56	65
Except Item	0	-449	-53	0	0	0
Net Profit	84	-485	-72	-535	-5403	1240
Equity	1003	1003	11	11	11	11
Reserves	12964	12822	13474	13408	3048	2800
Accumulated Loss	11668	11761	11359	11276	16593	11110
Fixed Assets	34	27	22	27	57	112
Promoter Stake %	35.65	50.93	100	100	100	100

Valuation

The weighted average price at which the equity shares of the company were acquired by the promoters and the selling shareholders in the one year preceding the date of the Red Herring Prospectus was Rs 37.36 (that is between Rs 32.64 and Rs 48.11). More importantly, after the offer for sale, the cost of residual holding of the selling shareholders including the promoters will turn negative. In the absence of credible profitability, this is bound to invite heavy selling pressure from the existing non-promoter shareholders after the lapse of the lock-in period (one year).