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SAR Televenture

• SAR Televenture is coming out with an initial public offering (IPO) of 45,00,000 equity shares of face value of Rs 2 each in a price band Rs 52-55 per equity share.
• The issue will open for subscription on November 1, 2023 and will close on November 3, 2023.
• The shares will be listed on NSE Emerge Platform.
• The share is priced 26 times of its face value on the lower side and 27.5 times on the higher side.
• Book running lead manager to the issue is Pantomath Capital Advisors.
• Compliance Officer for the issue is Abhishek Jain. 

Profile of the company

The company was set up with an object to provide telecommunication solutions to Telecom Network Operators. The Company is engaged in installation and commissioning of 4G and 5G Towers, Optical Fibre Cable (OFC) Systems and dealing in network equipments. The company is registered as Infrastructure Provider Category-I (IP-I) with Department of Telecommunication (DOT) which permits it to lease out own build sites i.e. GBT/RTT/Pole sites and Out Door Small Cell (ODSC) and establish and maintain assets such as Dark Fibres, Right of Way, Duct Space and Tower for the purpose to grant on lease or rent or sale basis to the licensees of Telecom Services. It also provided support services such as includes project management for laying of the duct and optic fibre cables, construction of basic transmission and telecom utilities, dark fiber leasing, optical fiber network construction, maintenance of duct and optic fibre and optical fibre project turnkey services to various, Telecom Network Operators & Broad Band Service Operators and ISPs across Maharashtra. 

It is a passive telecommunication infrastructure provider in India, engaged primarily in the business of installing and commissioning telecom towers in India. ‘Passive infrastructure’ refers to the telecommunication towers for wireless telecommunication services and Optical Fibre Cable (OFC) is used for the purpose of hosting and assisting in the operation of the active infrastructure used for transmitting telecommunications signals or transporting voice and data traffic. With its quality, cost-effective and time bound services, it has gained presence in the Industry as a Telecom Service Provider (TSP) Vendor.

Proceed is being used for:

• Installation of 5G/4G towers.
• Full or part repayment and /or prepayment of certain outstanding secured borrowings availed by the company.
• Funding the working capital requirements of the company.
• General Corporate Purposes.

Industry Overview

The Telecommunications industry is divided into following subsectors: Infrastructure, Equipment, Mobile Virtual Network Operators (MILLIONVO), White Space Spectrum, 5G, Telephone service providers and Broadband. As per Group Special Mobile Association (GSMA), India is on its way to becoming the second-largest smartphone market globally by 2025 with around 1 Billion installed devices and is expected to have 920 Million unique mobile subscribers by 2025 which will include 88 Million 5G connections. It is also estimated that 5G technology will contribute approximately $450 Billion to the Indian Economy in the period of 2023-2040.

India added over 500 Million new smartphone users over the last decade. It is expected to have 850 Million smartphone users by 2026, representing 55% of the total population. Under the Union Budget 2023, The Government of India plans to set up one hundred labs for developing applications using 5G services in engineering institutions to realize a new range of opportunities, business models, and employment potential.

Government is committed to reforms in telecom sector. The Government has approved various structural and procedural reforms in the telecom sector. These reforms include Rationalization of Adjusted Gross Revenue; Rationalization of Bank Guarantees(BGs); Rationalization of interest rates and removal of penalties; Dispensing with the requirement of BGs (for auctions held after 15.09.2021) to secure instalment payments; Permission for surrender of spectrum after 10 years (in future auctions); Dispensing with the requirement of Spectrum Usage Charge (SUC) for spectrum acquired in spectrum auctions held after 15.09.2021;

Pros and strengths

Experienced and dedicated senior team across key functions: It is led by a management team that has been involved in the roll-out of its existing portfolio from the start of its development until the present. Throughout the course of building its owned telecommunication portfolio numbering an aggregate 373 towers as on June 30, 2023, its management team, key /senior management team has developed project and operational management expertise and understands the key opportunities and risks associated with its business. Its management team, key /senior management team has relevant experience and know-how in the telecom industry, across business development, operations, administration, marketing and human resource management.

Efficient business model: Its growth is largely attributable to its efficient business model which involves identification and assessment of the project with emphasis on cost optimization which is a result of executing its projects with planning and strategy. Its business model relies more on speed of execution, quality of work performed and maintenance of the laid network. Its project team by using modern equipment’s and efficient labour manpower completes the project with quality and within the required timeframe.

Established relationship with client: It has developed strong and sustaining relationships with its Telecom service Provider (TPS) of Bharti Airtel. The Bharti Airtel contributed Rs 61.76 lakh, Rs 42.59 lakh and Rs 9.07 lakh for the fiscal 2023, 2022, 2021 respectively as per the Restated Consolidate Financial Information which constitute 19.02%, 90.06% and 100.00% of its revenue from operations for fiscal 2023, 2022 and 2021 respectively. Its track record of delivering timely services to its customer and demonstrated industry expertise consistently has helped it nurtures long-term relationships with them.

Risks and concerns

Depend on limited number of customer: It derives revenue from the operations viz. Tower Installation, Fiber cable laying & installation and Trading of network equipment. For tower installation service, it is dependent on the project sites order issued by Telecom Service Provider (TPS) of Bharti Airtel. It has in the past derived a significant portion of its revenue from limited number of TPS and it may continue to derive a significant portion of its revenue from such TPS. Its clients are based out of limited region like West Bengal, Bihar, Uttar Pradesh East, Punjab, Himachal Pradesh etc. Exposure to projects in new geographies which may not be as profitable as its current contracts. This may have a have a material adverse effect on its business, results of operations and financial condition.

Working capital requirements: The Company is depending on working capital for the purpose of project execution. In its business, significant amounts of capital are required towards financing the for day-to-day business expenses like salary, electric expenses, lease rental, security deposit, advances for the new sites. Its working capital requirements will increase as it seeks to expand its businesses. It may also increase if, in certain contracts, payment terms include reduced advance payments or payment schedules that specify payment towards the end of a tower installation. Delays in progressive payments or release of retention money or bank guarantees from its clients may increase its working capital needs. 

Face tough competition: It faces tough competition in the market from established Passive and Active Telecom Infrastructure Providers such as Suyog Telematics and Kore Digital etc. Also, It faces competition from players in sectors like real estate firms, which own several rooftops in the metros, located in high usage areas such as business parks and high density residential colonies. The rooftops are marketed as managed rooftops complete with security and power connection. Public sector giants such as railways, which have a dedicated telecom infrastructure arm offering their own mass communication facilities to the cellular and broadcast operators on lease. If it is unable to ensure that its telecom Infrastructure solutions are competitive in the future, this could adversely affect its future prospects, results of operations and financial condition.

Outlook

The company was set up with an object to provide telecommunication solutions to Telecom Network Operators. The Company is engaged in installation and commissioning of 4G and 5G Towers, Optical Fibre Cable (OFC) Systems and dealing in network equipments. On the concern side, the industry segments in which it operates are being diversified. It tries to remain competitive by seeking to understand the markets in which it operates in better and identify emerging opportunities. The tower infrastructure sharing business in India is highly competitive in nature. Most of the large players operating in this industry have distinctive advantage in terms of location, specific availability of resources and past experience in project execution.

The issue has been offered in a price band of Rs 52-55 per equity share. The aggregate size of the offer is Rs 23.40 crore to Rs 24.75 crore based on lower and upper price band respectively.  On performance front, its revenue from operations increased by 586.46% to Rs 3,246.17 lakh for the financial year 2022-23 from Rs 472.89 lakh for the financial year 2021-22 mainly due to increase in number of tower installed by 60.09% or 140 tower to 373 towers in FY 2023 from 233 towers in FY 2022. The company reported a profit after tax of Rs 388.36 lakh in FY 2022-23 as compared to a net profit of Rs 3.71 lakh in FY 2021-22. Meanwhile, it intends to actively seek out opportunities to add additional telecom operators as customers to its portfolio. As the costs of operating a tower locations are largely fixed and are recovered under the terms of the rental arrangement with the initial customer for any site, each additional customer beyond the first would be likely to have a positive effect on its margins customers.