Tejas Networks IPO has been subscribed 186.74% at the close of bidding. Of their respective quota of reserved shares, institutional investors bid 216.35%, while the retail investors bid an impressive 302.18% of theirs’. However, non-institutional investors bid a mere 48.23% of their quota. The IPO is worth up to Rs 776 crore, out of which the company plans to raise up to Rs 450 crore through a fresh issue of equity shares, while the existing stakeholders would get the rest via an offer for sale.
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. 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.
The nature of Tejas Networks’ business makes it unique in the sense that it does not have listed peers in its segment for comparison of valuations. At the upper end of the price band, the stock is valued at a P/E multiple of 29.29 times pre-IPO, and at 36.4 times post-IPO.
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.
Further, Tejas Networks is also expected to benefit a lot from the government’s preference for sourcing from domestic suppliers in the push for Make in India and Digital India, and also due to security implications involved in using electronic network communication products.