Tracxn Technologies: How good is it?

In our previous coverage of Tracxn Technologies IPO, we highlighted the key IPO details. In this installment, we take a comprehensive look at some of the key parameters pertaining to management, financials and valuations.

IPO questions

The company/business

1) Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
No. Tracxn Technologies reported a trailing 12 months loss before tax of Rs 3.3 crore as of June 2022.

2) Will Tracxn Technologies be able to scale up its business?
Yes. With the need for private market data growing and the number of PE and VC firms on the rise, Tracxn should see significant growth.

3) Does Tracxn Technologies have recognisable brands truly valued by its customers?
Yes. Tracxn's superior service quality has enhanced its brand awareness. Its high repeat usage also indicates a healthy brand value.

4) Does Tracxn Technologies have high repeat customer usage?
Yes, 23 per cent of its clients have availed of its services for more than three years.

5) Does the company have a credible moat?
No. As there are other bigger players with better infrastructure, it does not have a strong moat.

6) Is the company sufficiently robust to major regulatory or geopolitical risks?
Yes. As Tracxn does not operate in a highly regulated environment, it is insulated from such risks.

7) Is the business of the company immune to easy replication by new players?
No. The business has no entry barriers, and new players can easily scale up and replicate the company's services.

8) Is the company's product able to withstand being easily substituted or outdated?
Yes. As the need for private market data rises, demand for organised sources of information such as Tracxn will grow.

9) Are the customers of Tracxn Technologies devoid of significant bargaining power?
Yes. Since customers are subscribers and prices are set in advance, they do not have any significant bargaining power. However, clients jumping ships is not uncommon in this segment.

10) Are the suppliers of Tracxn Technologies devoid of significant bargaining power?
Yes. Tracxn acquires data from various sources, and hence, suppliers do not have any bargaining power.

11) Is the level of competition the company faces relatively low?
No. Tracxn has other competitors at a global level.

Management

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. The promoters will continue to hold a 35.6 per cent stake post issue.

13) Do the top three managers have more than 15 years of combined leadership at the company?
Yes. Promoters Neha Singh (Chairperson and Managing Director) and Abhishek Goyal (Vice Chairman and Executive Director) have been with the company since its inception in 2012.

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 doesn't have any material litigation.

16) Is the company's accounting policy stable?
Yes. We have no reason to believe otherwise.

17) Is the company free of promoter pledging of its shares?
Yes. The company's shares are free from pledging.

Financials

18) Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
No. The company reported a negative operating profit and a loss after tax in each of the last three years.

19) Was the company's operating cash flow positive during the last three years?
No. The company posted a positive operating cash flow in FY22 only.

20) Did Tracxn Technologies increase its revenue by 10 per cent CAGR in the last three years?
Yes. Its revenue increased by 30.4 per cent CAGR from Rs 37.3 crore in FY20 to Rs 63.5 crore in FY22.

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 is debt-free.

22) Is the company free from reliance on huge working capital for day-to-day affairs?
Yes. The business doesn't require a high level of working capital for day-to-day activities.

23) Can the company run its business without relying on external funding in the next three years?
Yes. The asset-light and subscription nature of the business ensures that the company can run without any external funding.

24) Have the company's short-term borrowings remained stable or declined (not increased by greater than 15 per cent)?
Yes. The company is debt-free.

25) Is the company free from meaningful contingent liabilities?
Yes. The company does not have any meaningful contingent liabilities.

Stock/Valuations

26) Does the stock offer an operating-earnings yield of more than 8 per cent on its enterprise value?
No. The stock offers an operating earnings yield of -0.4 per cent.

27) Is the stock's price-to-earnings less than its peers' median level?
There are no listed peers. The company reported a trailing 12 months loss as of June 2022.

28) Is the stock's price-to-book value less than its peers' average level?
There are no listed peers. The company's post-IPO book value would be 34.9 times.

Also, read our earlier story on Tracxn Technologies IPO to learn about key IPO details and important company information.

Disclaimer: The authors may be applicants in this Initial Public Offering.