Tejas Networks Ltd, which earlier this month sold shares worth Rs 777 crore in an IPO, including a fresh equity share issue of Rs 450 crore, made a tepid listing on the stock exchanges on Tuesday, opening for trade at par with the issue price. Tejas Networks shares today listed at Rs 257 on the Bombay Stock Exchange, equal to the higher end of the IPO price band, after the IPO had got subscribed by a decent 1.87 times.
Most analysts and brokerages had recommended to subscribe to the IPO for a long term investment despite lack of clarity on comparative valuations and risks arising from competition and changing technology. Bangalore-based Tejas Networks, which makes products for optical fibre and data networks, may be an attractive bet for a long term investor willing to ride out a few potential risks to the stock, most analysts seemed to argue. While the company’s continuous efforts on research & development and investments in technological innovation are at the core of its strength, the same R&D spends and breakthroughs in technology may pose significant risks to its business going ahead, they had said.
Tejas has a strong focus on innovation, with 313 of its total 607 employees engaged in research and development, primarily aimed at expanding high growth segment product portfolios. The company outsources its manufacturing to electronic component manufacturers. It also has a decent intellectual property portfolio with 326 patent applications and 47 granted patents.
Angel Broking had recommended to ‘subscribe’ to the issue due to Tejas Networks’ strong revenue CAGR of 24.2% over FY2013-17; improving RoE to 12.9% in FY2016-17; strong operating leverage with asset-light business; strong professional team with significant industry experience; and its technology leadership with a strong patent portfolio across the world.
IDBI Capital had rated the issue as ‘subscribe’, but has cited high days receivable, which indicates a poor management of accounts receivable, and expansion plans in Africa as potential risks.
Choice Capital had recommended to ‘subscribe’ to the issue, although it has termed valuation slightly expensive. The brokerage house said that based on the positive outlook of the industry and positioning of Tejas Networks in the industry, the forward valuation demand by the company seems to be attractive, provided the momentum in the business in FY17 continues.
SMC Research had rated the issue at 2.5 on a scale of 5, suggesting that the long-term investors may opt for the issue as Tejas Networks is set to benefit immensely under the government’s Digital India and Make in India campaigns.