IPO Update - Tanla Solutions

Betting on Big Boys, Outlook Stable

Tanla Solutions has eneterd the capital markets with an offer of 1.59 crore shares at a price band of Rs. 230-265. Investment guru recommends investors to subscribe to the IPO with a short term outlook. The stock may give listing gains in the range of 25-30%.

Lets take a look at the company in detail :

Tanla is a provider of integrated telecom solutions and products for the wireless market.

The company specialize in providing SS7 messaging infrastructure software products including Short Messaging Service Centre (SMSC), High Density Media Servers (HDMS), optimal routing solutions, welcome roamers, voice mail servers and Aggregator Services and offshore services including software development, infrastructure management services and technical support services.

The major part of the company’s revenue is driven by its subsidiary in UK. The company boasts of high profile clients including Vodafone, O2 and Hutchison. Forex fluctuations can have a significant impact on company revenues since 98% of the revenues are derived in foreign currency.

Top 5 clients constitutes around 49% of its revenues. Hences, the revenue sources are skewed in favour of these companies. Howevr, this should not a worrying factor give the niche the company enjoys in its segment.

The company states established and proven products and services, Leading telecom companies as clients, Scalability of solutions, cost efficiency due to India operations, flexible pricing model and focus on R&D as its competitive strengths.

On a consolidated basis, the company’s revenues have grown rapidly during FY06 and the first half of FY07 has also shown significant increase. The company revenues have grown by 282% to reach 63 crores in FY06 . In first half of FY07 the company has already done business of 87 crores, 138% above its full year revenues of FY06.

Net profits grew 444% in FY06 to reach 30 Crores mark. For the first six months of FY07 the company has already achieved 35 crores in profits, more than what it did in full year in FY06.

The company’s operating margins stood attractive at 55.7% in FY06 and 51.3% in first half of FY07.

The proceeds pf the IPO would be used for Setting up infrastructure facility for a development centre at Hyderabad, disaster recovery centre at Bangalore, establishing overseas offices and R&D.

Valuations : The weighted average EPS for last three years stood at 5.39. However since the company is on a high growth path, we should also consider the current EPS. The EPS for the six months ending sept.,2006 stood at 10.47.

On a consolidated basis the weighted average Return on Net worth stood at 58.24%. For the first half ending Sep.,2006, the return was 46.87%. The pre-issue net asset value per share as of Sep. 30 stood at Rs. 22.33.

If we annualize the first half EPS of the unconsolidated entity the EPS comes to 13.5 giving a PE of 19.6 at the higher price band. There are no listed comparables belonging to same industry.

Issue Opens : 11-12-2006

Issue Closes: 14-12-2006

Registrar : Karvy

Additional references :

About Tanla Solutions

Product Profile of Tanla Solutions