What you must know about TBO Tech IPO?

TBO Tek Ltd – About the company

TBO Tek Ltd was established in year 2006, was formerly known as Tek Travels Private Ltd. TBO Tek Ltd offers a travel distribution platform, which syndicates and makes available travel inventory according to the specific and customized needs of its customers. Apart from travel services, TBO Tek Ltd also supports a wide range of currencies and also offers forex support to its customers. TBO Tek Ltd is more of a B2B player than a B2C player. In fact, the company does the job of simplifying the travel business for suppliers of tourism and travel services such as hotels, airlines, car rentals, transfers, cruises, insurance, rail companies etc. It directly deals with travel agencies and independent travel consultants, and facilitates their interaction with retail end-customers. It has sold over 7,500 destinations in 100 countries.

In addition, it also offers services directly to corporate customers like tour operators, travel management companies, online travel companies, super apps, and loyalty apps. In short, TBO Tek Ltd offers an agnostic digital platform that brings together the suppliers and the consumers of travel related services. The modus operandi is something like this. The agnostic platform offered by TBO Tek Ltd enables the sellers of such services to display and market their inventory and set prices for buyers. For buyers, this offers a one-stop solution. The TBO Tek platform is an integrated, multi-currency, and multi-lingual platform which helps them discover and book travel to destinations around the world. This includes travel options across a range of travel segments like leisure, business, and religious travel.

The fresh funds will be used for expanding the supplier and buyer base, adding new lines for amplification of business, inorganic growth, and data monetization. The promoters of the company are Ankush Nijhawan, Gaurav Bhatnagar, Manish Dhingra, and Arjun Nijhawan. The promoter stake currently stands at 51.26%, which will dilute post the IPO. The IPO will be lead managed by Axis Capital, Jefferies India, Goldman Sachs, and JM Financial; while KFIN Technologies Ltd will be IPO registrar.

Highlights of the TBO Tek IPO issue

Here are some of the key highlights to the public issue of TBO Tek IPO.

• TBO Tek IPO will be open from May 08th, 2024 to May 10th, 2024; both days inclusive. The stock of TBO Tek Ltd has a face value of ₹1 per share and the price band for the book building IPO has been set in the range of ₹875 to ₹920 per share.
   
• TBO Tek IPO will be a combination of a fresh issue of shares and offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of TBO Tek Ltd comprises the issue of 43,47,826 shares (43.48 lakh shares approximately), which at the upper price band of ₹920 per share will translate into a fresh issue size of ₹400 crore.
   
• The offer for sale (OFS) portion of the IPO of TBO Tek Ltd comprises the sale / offer of 1,25,08,797 shares (125.09 lakh shares approximately), which at the upper price band of ₹920 per share will translate into an OFS size of ₹1,150.81 crore.
   
• Out of the OFS size of 125.09 lakh shares, a total of 3 promoter shareholder will be selling 52.12 lakh shares. In addition, 2 investor selling shareholders will offer the balance 72.97 lakh shares in the offer for sale (OFS).
   
• Thus, the total IPO of TBO Tek Ltd will comprise of a fresh issue and an OFS of 1,68,56,623 shares (168.57 lakh shares approximately) which at the upper end of the price band of ₹920 per share aggregates to total issue size of ₹1,550.81 crore.

The IPO of TBO Tek Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Promoter holdings and investor quota allocation

The company is substantially owned to the extent of 51.26% by the promoters of the company. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, as indicated above. There is an employee quota of up to ₹3.00 crore that has been communicated by the company as the shares reserved for employees in its red herring prospectus (RHP). The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately.

Lot sizes for investing in the TBO Tek IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of TBO Tek Ltd, the minimum lot size is 16 shares with upper band indicative value of ₹14,720. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of TBO Tek Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Key dates for TBO Tek IPO and how to apply?

The issue opens for subscription on 08th May 2024 and closes for subscription on 10th May 2024 (both days inclusive). The basis of allotment will be finalized on 13th May 2024 and the refunds will be initiated on 14th May 2024. In addition, the demat credits are expected to also happen on 14th May 2024 and the stock will list on 15th May 2024 on the NSE and the BSE. TBO Tek Ltd will test the appetite for such affordable home financing stocks in India. The credits to the demat account to the extent of shares allotted will happen by the close of 14th May 2024 under ISIN (INE673O01025). Let us now turn to the practical issue of how to apply for the IPO of TBO Tek Ltd.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing.

Financial highlights of TBO Tek Ltd

The table below captures the key financials of TBO Tek Ltd for the last 3 completed financial years.

Data Source: Company RHP filed with SEBI (FY refers to Apr-Mar period)

There are few key takeaways from the financials of TBO Tek Ltd which can be enumerated as under

1. In the last 3 years, revenue growth has been extremely strong even if you consider the low base, with revenues in FY23 growing nearly 650% over FY21. The growth has been balanced in the last two years, but what is striking is that the company has reported very healthy net margins of 13.95% for the latest year. The company had made a net loss in FY21 and hence previous numbers may not be comparable.
    
2. The net profits for FY23 have grown have nearly 350% in the last one years and it has been a sharp turnaround from the losses of FY21. Also, the return on equity (ROE) at 44.04% and the return on assets (ROA) at 5.81% are very attractive in the latest year from the standpoint of a lending business. The company appears to have leveraged magnified platform revenues quite well.
    
3. The company has a sweating of assets at just around 0.42X in the latest year, and that has consistently been around that level. However, in the digital platform business, the asset turnover may not be too relevant since eventually it is the margins that matter and that has been robust; both on sales and on equity.

Overall, the company has maintained healthy numbers in terms of growth in top line and bottom line as well as profitability and efficiency margins. However, there is only 2 years of profit data to go by, as the company was making losses till FY21.

Valuation metrics of the TBO Tek IPO

Let us turn to the valuations part. On the latest year diluted EPS of ₹14.07, the upper band stock price of ₹920 gets discounted at a P/E ratio of 65-66 times. However, this sort of P/E ratios are normal in the digital ecommerce platform business.  If you look at the numbers for the first 9 months of FY24, the EPS is already at ₹15.15, so full year EPS can be extrapolated to ₹20.20 per share. It now translates into P/E ratio of 45-46 times, which looks a lot more reasonable and also fairly enticing. In fact, that is reasonable if you look at the peer group.

Here are some qualitative advantages that TBO Tek Ltd brings to the table.

• The company not only has a large mountain of data, but also the capability to leverage and monetize such data, which is an invaluable resource in the future.
   
• TBO Tek Ltd boasts of a capital efficient business model, which has resulted in strong returns on equity and on assets on a consistent basis.
   
• Since it is the B2B scalable platform business, it has the added advantage of catering to a few high value clients in the B2B space and deepening the relationship.

The company has consistently demonstrated that with a fine-tuned business model, it is possible to maintain high growth and profitability in the platform business on a sustained basis. A lot will depend on how this story pans out in the coming quarters. However, the last 3 years have shown good progress since it turned around to profits. The early day price of the internet business has been paid. Now comes the real monetization. For investors, it would be worthwhile to pay a premium for a highly replicable business model.