Avoid Taksheel Solution IPO: Magnum Sec

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Avoid Taksheel Solution IPO: Magnum Sec

Taksheel Solution will enter the capital market on September 29, 2011 with a fresh issue of 55 lakh equity shares of Rs.10 each; in the price band of Rs 130-150 a share, aiming to raise Rs 71.5-82.5 crore.

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Taksheel Solut BSE | NSE 23/05/12 Are Mutual Funds betting on Taksheel Solut?

Taksheel Solution will enter the capital market on September 29, 2011 with a fresh issue of 55 lakh equity shares of Rs.10 each; in the price band of Rs 130-150 a share, aiming to raise Rs 71.5-82.5 crore. Magnum Securities has recommended Avoid to the issue.

Magnum Securities research report:

Object of the issue:

Capital expenditure for setting up a new software development center at Hyderabad & Warangal

Acquisitions and Other Strategic Initiatives

Financing the incremental working capital requirements

General Corporate Purposes.

To meet Issue expenses.

Outlook

The IPO has been rated on the basis of revenue concentration risk in terms of geography, verticals and number of clients, growing trend in US market and significantly high level of debtors leading to a negative cash flow from operation in recent past.

However the company is also engaged with the legal activities with RBI from last so many years. But the company carries a high rich experience of promoter in this field.

The company's top line grew at a CAGR of 65.49% in the last five years to Rs 147 Cr in FY11. The company did an EBITDA margin of 19% and a PAT margin of 19% in FY11.

The company's market cap is Rs 327 Cr on an upper price band of Rs 150 which is 2.2 times its FY11 revenues. On fully diluted equity, the EPS stands at Rs.16.5 and on this basis, the issue is priced at a P/E of 7.87 to 9.09 based on lower and upper price band. Considering NAV of Rs. 55.41 as on 31.3.2011, the asking price is at an average of 2.70 P/BV.

The company is a very small player in a rapidly growing IT business and is exposed to international markets.  Hence TSL pricing looks cheap against the industry composite, it may not be attractive. Thus it's worth giving a miss.