In our story, RateGain Travel Technologies IPO: Information analysis, we shed light on the critical details of the IPO, along with important information about the company. Here we will answer some questions about RateGain and evaluate it on parameters like management, financials, valuations, etc.
1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
No. In the trailing twelve months (TTM) ending August 2021, the company reported a loss before tax of Rs 27.9 crore.
2) Will the company be able to scale up its business?
Yes. With its large data lake, inter-connected products and significant opportunity to expand its MarTech business, the company will be able to scale up its business.
3) Does the company have recognisable brands truly valued by its customers?
Yes. The company's products are critical for its customers, and given that its offerings are differentiated from its competitors, the brand is truly valuable.
4) Does the company have high repeat customer usage?
Yes. RateGain's annual recurring revenues (refers to contractually recurring revenues and not one-off) have been more than 95 per cent across the three segments since FY19.
5) Does the company have a credible moat?
No. The company's SaaS platform, interoperable products, data lake and AI & big data capabilities put it in a good position. However, given that most of these capabilities have been built in the last two to three years and the pandemic has hampered execution, it remains to be seen whether such capabilities translate into superior performance.
6) Is the company sufficiently robust to major regulatory or geopolitical risks?
Yes. The company is sufficiently robust to major regulatory or geopolitical risks.
7) Is the company's business immune from easy replication by new players?
Yes. The company's distribution business is hard to replicate as it is connected with the systems of both accommodation providers and their demand partners. Moreover, the ability to leverage its inter-connected products through its platform is not easily replicable.
8) Can the company's product withstand being easily substituted or outdated?
Yes. The company's offerings play a critical role in helping hospitality and travel providers acquire more guests, retain them via personalised guest experiences and seek to maximise their margins.
9) Are the customers of the company devoid of significant bargaining power?
No. While the company enters into contracts with its customers, they are mainly large enterprises with greater leverage in negotiating contractual agreements.
10) Are the suppliers of the company devoid of significant bargaining power?
No. Suppliers in the case of tech companies are employees with technological skills. With intense competition for employees in the marketplace, especially those with advanced skills, bargaining power with companies is low.
11) Is the level of competition the company faces relatively low?
No. While there aren't any competitors offering a SaaS platform like RateGain, the company has to compete with different companies in different market segments.
12) Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
Yes. Post-IPO, the promoter and promoter group will hold about a 55.3 per cent stake in the company.
13) Do the top three managers have more than 15 years of combined leadership at the company?
Yes. Managing director Bhanu Chopra (one of the promoters) has been associated with the company since its incorporation in 2004.
14) Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
Yes, we have no reason to believe otherwise.
15) Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
Yes, the company is free from any material litigation.
16) Is the company's accounting policy stable?
Yes. As per the auditors' report, the accounting policy is stable.
17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free of any pledging.
18) Did the company generate a current and three-year average return on equity of more than 15 per cent and return on capital employed of more than 18 per cent?
No, the company's three-year (FY19-21) average return on equity was -6.1 per cent and a return on capital employed of -0.2 per cent. For FY21, the company generated a return on equity of -11.7 per cent and a return on capital employed of -5.0 per cent.
19) Was the company's operating cash flow positive during the last three years?
Yes, the company has reported positive operating cash flow during the last three years.
20) Did the company increase its revenue by 10 per cent CAGR in the last three years?
No. The company's revenue decreased from Rs 261.6 crore in FY19 to Rs 250.8 crore in FY21.
21) Is the company's net debt-to-equity ratio less than one, or is its interest-coverage ratio more than two?
Yes. The company's net debt-to-equity ratio stood at 0.21 as on August 31, 2021.
22) Is the company free from reliance on huge working capital for day-to-day affairs?
Yes. The company has positive working capital and a strong cash position. With a working capital cycle of 47 days, it will not need huge working capital.
23) Can the company run its business without relying on external funding in the next three years?
Yes. The company has planned to utilise its IPO proceeds for inorganic growth. With low capital requirements and high operating leverage, the business generates strong free cash flows, which the company can put to good use.
24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
No. Short-term borrowings increased from zero in FY19 to Rs 14.2 crore on August 31, 2021.
25) Is the company free from meaningful contingent liabilities?
No, the company has meaningful contingent liabilities to the tune of Rs 68.3 crore (representing 28 per cent of net worth). These are related to potential indirect tax payments.
26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No, as the company reported negative operating earnings.
27) Is the stock's price-to-earnings less than its peers' median level?
Not applicable. There are no listed peers for the company. Also, the company has reported a loss for FY20 and FY21.
28) Is the stock's price-to-book value less than its peers' average level?
Not applicable. There are no listed peers for the company. Post-IPO, the company's stock will trade at a P/B of around 7.5.
Also read RateGain Travel Technologies IPO: Information analysis to learn about key IPO details and important information about the company.
Disclaimer: The author may be an applicant in this Initial Public Offering