Suyog Telematics IPO: Should You Invest?

Suyog Telematics (STL), a Mumbai-based passive telecom infrastructure provider, is all set to go public to raise Rs 4.56 crore. The company has proposed to be listed on BSE SME platform, and is offering 18.12 lakh equity shares at a fixed price of Rs 25 per share. The issue comprises 1.08 lakh equity shares reserved for market makers. The lead manager for this issue is Aryaman Financial Services.

Incorporated in the year 1995, STL is primarily engaged in the installation and commissioning of poles, towers and optical fibre cable systems. The company's client list incldes Airtel, Idea Cellular, Vodafone, Tata Teleservices, Aircel and Loop Mobile. It has installed 229 poles for Reliance Infocomm Engg, Vodafone India and Bharti Airtel. STL owns and operates 81 telecom towers in Maharashtra and Uttarakhand for its clients, including Tata Teleservices, Airtel, Vodafone and BSNL.

During FY2013, STL posted revenues of Rs 8.89 crore, which was 2% lower than those in FY12. Its saw a dip in its major expenses, including cost of material and other expenses (travelling and legal fee). However, the company’s financial expenses climbed by 260 per cent on a yearly basis to Rs 1.4 crore on account of the increase in working capital requirement and purchase of fixed assets worth Rs 4.15 crore. This has led to an increase in the debt burden and the interest expenses. The Profit After Tax (PAT) came in at Rs 1 crore, up 39% on a YoY basis, as the company is able to reduce its operating costs from 80% of sales at the end of FY12 to 62% of sales in FY13. Its 5-year CAGR for revenue and profits stands at 37% and 48% respectively for FY13.

The company has proposed to utilise the raised funds for installing 10 new rooftop poles and 100 new ground-based poles. It also plans to replace the existing towers and poles with the remaining funds.

While STL has no definite peer in the listed space, let’s consider the valuations of a few of the listed companies operating in the telecom sector. Reliance Communications, Quadrant Televentures, Idea Cellular, Bharti Airtel and Goldstone Infratech are trading at a PE of 32x, 36x, 45x, 29x and 17x respectively. In this offering, at an issue price of Rs 25 and FY13 EPS of Rs 1.55, the PE stands at 16.16x and the PEG ratio for FY13 is at 0.42x. Further, STL's fixed assets purchased during FY13 are expected to pay off in the coming years. The net proceeds from the issue will also get invested, and that will start generating revenues for the company in the coming period. Being a small player, STL will also be a good acquisition target for giants in the telecommunications sector. Considering all these factors, we advise investors to subscribe to this public offering.