Fatpipe Networks India - IPO

IPO details

Company Name: Fatpipe Networks India
Issue Size:  Rs 49 crore
Price Band: Rs 82-85
Issue Date: Jun 7 to Jun 9

CHENNAI-BASED Fatpipe Networks India is coming out with its maiden public issue of around 6 million equity shares with face value of Rs 10 each to raise Rs 49 crore. The issue represents 31.5% of the post-IPO equity capital of the company and the promoters' stake in the company will decline to around 26% after the IPO from around 37% currently.

    The balance equity is held by a clutch of venture capitalists and private-equity funds. Some of the large non-promoter shareholders in the company include vSpring Management, Wasatch Ventures, vSpring SBIC Management, Draper & Associates, Odessey Capital.

    The company is hitting the market to raise resources to fund its next stage of growth, which includes launch of new product lines with enhanced R&D, (Rs 6.76 crore), establishing a global sales and marketing network (Rs 10 crore), making strategic acquisition (Rs 15 crore) to fill the gaps in its product/geographic portfolio and augment its working capital (Rs 7.2 crore).

    At the upper price-band, the offer price works out around 23 times the company's estimated earning per share for FY11 and looks expensive compared to peers such as Avaya Global, Tulip Telecom, D-link India, Take Solutions and SmartLink Network Systems. The latter are currently trading with price to earning multiple of 8-12x.

BUSINESS

Incorporated in December 2002, FatPipe Networks India, develops, manufactures and markets router-clustering equipments for wide area network (WAN) optimisation, reliability, security, and bandwidth management applications. The company vision is to be a leader in technology used for communication between the head office and branch office and provide reliable communication channel over widely available infrastructure. The company holds 7 patents on router clustering.

    In 2008, Fatpipe US was merged with Fatpipe India (which was till then a back office), making latter into the headquarters of their worldwide operations. For nine month period ended December 31, 2009, the Indian market accounted for less than 2% of its global revenues of Rs 45.91 crore.

    The company's customers include world's top law firms, several fortune 1,000 companies and leading global hotel chains among others. The company currently offers its services in the US, the UK, Australia, and India. Post-IPO, it proposes to open offices in China, Singapore, South Africa, Kenya, Nigeria, Argentina, Belgium, Germany, France and Eastern Europe. In the Indian market, the company plans to tap potential customers in tier-II cities such as Ahmedabad, Kanpur and Nagpur among others.

FINANCIAL

Due to the merger of Fatpipe US and Fatpipe India in 2008, the company's financial history is not readily available for comparison. The comparable numbers are only available for FY09 and the first nine months of FY10. The company seems to be growing steadily and its revenues and profits in April-December 2009 exceeded the corresponding figures for FY09 by a big-margin. The management expects a further acceleration in its growth through financial muscle provided by the IPO proceeds.

VALUATION

At the higher end of the price band, Fatpipe seeks a P/E of 23x, adjusted for IPO equity dilution. This is expensive compared with its listed industry peers. However, the business doesn't require much capital and the IPO proceeds can help the company scale up its operations manyfold in the next two-three years. The downside is that the company is operating in a highly competitive industry. Given this, investors with high-risk appetite can subscribe to the issue and while those who seek safety can give it a miss.