What you must know about Trident Techlabs IPO?

About the Trident Techlabs Ltd business model

Trident Techlabs Ltd was incorporated in the year 2000, and the company provides technology-based solutions to the aerospace, defence, automotive, telecommunications, semiconductor, and power distribution industries. Broadly, it caters to a segment that is high on growth, high on capex and also high on intellectual property creation. Broadly, Trident Techlabs Ltd works with two key business verticals. The first business vertical is the Engineering Solutions Vertical. The broad business lines of this segment include, consulting and technical services in system-level electronic design, chip-level electronic design, embedded design, hydraulic & pneumatic systems, system modelling, reliability and quality, design automation, power electronics, Printed Circuit Board (PCB) design, and electromagnetic simulations. The company operates in a very niche space and has put in places technical expertise, technology stack and process flow that are of a high quality.

The second business vertical of Trident Techlabs Ltd is the Power System Solutions Vertical. This particular vertical provides products and services to power distribution utilities that help them maximize the capacity of aging transmission infrastructure. This is a standard problem statement for most of the existing power companies and there is also a big transition in this segment as it shifts increasingly towards the renewable energy space. The business focus of this vertical of Trident Techlabs Ltd focuses on managing increasing intermittent generation from renewable energy sources, and deploy smart grid technologies that add complexity to transmission investment decisions. This has been the big challenge for the renewable sources like solar and wind energy and that is where this division can make a big difference to the segment. Currently, Trident Techlabs Ltd employs a team of more than 100 engineers and IT and other domain specialization professionals.

Key terms of the SME IPO of Trident Techlabs Ltd

Here are some of the highlights of the Trident Techlabs IPO on the SME segment of the National Stock Exchange (NSE). 
    • The issue opens for subscription on 21st December 2023 and closes for subscription on 26th December 2023; both days inclusive.

    • The company has a face value of ₹10 per share and it is a book built issue with the booking price band fixed in the range of ₹33 to ₹35 per share. Being a book built issue, the final IPO price will be discovered within this band post the IPO book is built.

    • The IPO of Trident Techlabs Ltd has only a fresh issue component and no offer for sale (OFS) portion. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, but OFS is just a transfer of ownership and it is not EPS or equity dilutive.

    • As part of the fresh portion of the IPO, Trident Techlabs Ltd will issue a total of 45,80,000 shares (45.80 lakh shares), which at the upper booking building band price of ₹35 per share aggregates to a total fund raising of ₹16.03 crore.

    • Since there is no offer for sale (OFS) portion in the IPO, the fresh issue size will also double up as the overall size of the IPO. Hence, the total IPO size will also comprise of the issue of 45,80,000 shares (45.80 lakh shares) which at the upper band price of ₹35 per share will aggregate to overall IPO size of ₹16.03 crore.

    • Like every SME IPO, this issue also has a market making portion with a market maker inventory allocation of 3,60,000 shares. The market maker for the issue is Giriraj Stock Broking Private Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing as well as ensuring low basis costs.

    • The company has been promoted by Sukesh Chandra Naithani and Praveen Kapoor. The promoter holding in the company currently stands at 92.48%. However, post the fresh issue of shares in the IPO, the promoter equity holding share will get diluted to 73.5%.

    • The fresh issue funds will be used by the company for funding the working capital gaps. Part of the monies raised will also go towards meeting the general corporate expenses of the company.

    • GYR Capital Advisors Private Ltd will be the lead manager to the issue, and Maashitla Securities Private Ltd will be the registrar to the issue. The market maker for the issue is Giriraj Stock Broking Private Ltd.

IPO allocation and minimum lot size for investment

Trident Techlabs Ltd has allocated 7.86% of the issue size for the market makers to the issue, Giriraj Stock Broking Private Ltd. The net offer (net of market maker allocation) will be divided between the QIBs, the retail investors and the HNI / NII investors. The breakdown of the overall IPO of Trident Techlabs Ltd in terms of the allocation to various categories are captured in the table below; including the shares likely to be allocated as part of the anchor portion ahead of the IPO opening. Anchor portion has been carved out of the QIB portion.

The minimum lot size for the IPO investment will be 4,000 shares. Thus, retail investors can invest a minimum of ₹140,000 (4,800 x ₹35 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 8,000 shares and having a minimum lot value of ₹280,000. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Trident Techlabs Ltd IPO (SME)

The SME IPO of Trident Techlabs Ltd IPO opens on Thursday, December 21st, 2023 and closes on Tuesday, December 26th, 2023. The Trident Techlabs Ltd IPO bid date is from December 21st, 2023 10.00 AM to December 26th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is December 26th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Data Source: Company DRHP filed with SEBI

Here are some of the key takeaways from the financials of the company for the last 3 years. 
    • The revenues have grown very sharply by more than two-fold only in the latest year even as the profit margins have expanded sharply to 8.13% in the latest year. Previous numbers may not be comparable in this case.

    • The net margins have been in the range of 8-9% in the latest year is attractive. Here again, the comparisons are tough since the company had been making net losses till FY21 and so only the latest year is relevant. ROE at 33.56% is also robust.

    • Being a capital heavy business, the asset turnover ratio or the asset sweating ratio has turned around to above 1.3X in the latest year, which is positive. This comes on top of double digit ROA in the latest year.

The company has latest year EPS of ₹4.72 and weighted average EPS may not be too relevant in this case. However, a lot will depend on what level the EPS sustains in the long run since growth has been quite erratic in the last 3 years. By latest year valuations, the company looks reasonably priced at around 7.42X P/E ratio; which does not really do justice to the stock in such a niche business vertical catering to high growth segments. 

The focus would be on the next few quarters. This company depends largely on orders from the defence and aerospace segment and they can be cyclical. Investors should look at the company from a longer term perspective and the risk appetite also needs to be higher for this stock.