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Salient features of the IPO:

• Private market intelligence platform Tracxn Technologies Ltd. (Tracxn) is coming up with an IPO to raise around Rs. 310cr, which opens on 10th Oct. and closes on 12th Oct. 2022. The price band is Rs. 75 - 80 per share.

• The IPO only comprises of OFS, thus the company will not receive any proceeds from this issue.

Key competitive strengths:

• Leading global provider of differentiated private market data & intelligence

• Diverse, longstanding and growing global customer base

• Scalable & secure technology platform conceptualized & developed in-house

• Significant cost advantages from India-based operations

• Experienced promoters, Board of Directors and senior management team backed by marquee investors

Risk and concerns:

• Unfavorable government policies & regulations

• Difficulty in expanding and maintaining the customer base

• Unfavorable forex currency movements

• Continued loss making operations

• Competition

Below are the key highlights of the company:

• The total addressable market for private market data was USD 1,322mn in 2021 and is expected to grow at around 12% CAGR over 2021-25 to reach a size of USD 2,097mn by 2025. The growth of the market is expected to be mainly dependent on the growth of the number of private equity, venture capital & other investment firms, large corporates and other entities who will be willing to invest in private companies (Source: RHP).

• Launching its platform in FY15, Tracxn has grown to be one of the major players in the private market data service provider space. It is among the leading global market intelligence providers for private company data and is ranked among the top five players globally in terms of number of companies profiled across sectors and geographies. It has an asset-light business model and operates a software-as-a-service based platform “Tracxn”.

• The company is backed by investments from angel investors such as Ratan Tata, the NRJN Family Trust (founder Nandan Nilekani) etc. It also received investments from Elevation Capital, Accel Partners, Sequoia Capital, Prime Venture Partners and KB Investments.

• Through this IPO, the promoters are offloading a cumulative stake of 15.28%. Venture investor, Elevation Capital is offloading its 50% stake, while SCI investments and Accel India IV (Mauritius) Ltd. are fully exiting from the company.

• Tracxn has one of the largest coverage of private companies in emerging technology sectors including IoT, artificial intelligence, virtual reality, robotics, blockchain and electric vehicles. The company tracks more than 1.8mn companies and approximately 1200 entities are added every day to its repository of companies. It also covers over 2,000 feeds along with 3.6mn news & event tracking (as of Jun. 2022) and also generates more than 14,000 reports every year.

• The company offers its customers private company data for deal sourcing, identifying M&A targets, deal diligence, analysis and tracking emerging themes across industries and markets, through its subscription-based platform. As of FY22, Tracxn derived all the revenue from the B2B subscription based business model.

Key highlights of the company (Contd…):

• It provides users with detailed profiles of companies including detailed information of funding rounds & acquisition related information, taxonomy & market maps, global competitor benchmarking, financial information, valuation & capitalization tables, employee count, investor profiles, competitor mapping, information about founders, key team & board member, company & sector specific reports and news events.

• Tracxn has a geographically diversified customer base, which comprises of private market investors & investment banks, corporates across industries and others (including government agencies, universities, accelerators and incubators). Its customer base has increased at 32.4% CAGR from 471 in FY19 to 1,092 in FY22. As of Jun. 2022, its platform had 3,271 users across 1,139 customer base, which includes a number of Fortune 500 companies.

• The company has maintained long standing relationships with its customers which can be demonstrated by retention rate, which stood at around 72-73%. Further as of 30th Jun. 2022, eight of its top-10 customers have been associated with it for over three years, while around 23% of its active customer base has been associated with it for over three years.

• Over FY19-22, the company has reported a robust growth in the business, but the operations were loss making. On the back of 32.4% CAGR rise in the customer base, the company reported a 24.1% CAGR growth in the top-line to Rs. 63.5cr in FY22. Total operating expenditure increased by 6.7% CAGR, mainly due to almost stable employee benefit expense, which as a percent of top-line stood at 92.3% in FY22 as compared to 139.2% in FY19. This led to reduced EBITDA losses during the period, which stood at Rs. 1.9cr in FY22, compared to Rs. 20.6cr in FY19. Despite reporting a business growth, depreciation charges declined by 39.4% CAGR. The company reported a fair value gain of Rs. 33.6cr in FY19 on compulsorily convertible preference shares (CCPS), which stood at Rs. 0.6cr in FY22. As a result, reported PAT was at loss of Rs. 4.8cr in FY22 as compared to a profit of Rs. 12.4cr in FY19.

• Tracxn reported a negative operating cash flow during the period, except for FY22 (Rs. 0.6cr). Financial liabilities declined by 88.2% CAGR, mainly due to the conversion of CCPS into equity shares. Consequently, the operations were debt free from FY21.

• During Q1 FY23, the company reported a 22.9% Y-o-Y growth in the business, mainly supported by a 20.4% higher customer base. Lower employee cost, as percent of top-line led to an EBITDA profit of Rs. 0.2cr, compared to a loss of Rs. 0.6cr in Q1 FY22. Other income (net of exceptional items) stood at Rs. 0.7cr (compared to net other income loss of Rs. 0.1cr in Q1 FY22). As a result reported profit stood at Rs. 0.8cr in Q1 FY23, compared to a reported loss of Rs. 0.2cr in Q1 FY22. On TTM basis, top-line stood at Rs. 66.9cr with reported EBITDA and PAT loss of Rs. 1.1cr and Rs. 3.3cr, respectively.

Peer comparison and valuation: There is no peer company in the listed space having operations similar to the company. At higher price band, Tracxn is demanding an EV/Sales multiple of 12.3x, which seems to be stretched for a loss making operations. Considering the high attrition rate in the IT-enabled sector and already double digit attrition level (49% in FY22 and 13.8% in Q1 FY23) of Tracxn, we are cautiously optimistic on the company’s efforts in bringing down the employee costs. Also partial/full exit by PE investors raises the concerns on the long term potential growth outlook. Thus considering the above observations, we assign an “AVOID” rating for the issue

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