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Tejas Networks files for IPO; Frontline PE, Intel Capital to sell stake

10 February, 2017

Bangalore-based telecom equipment company Tejas Networks Ltd on Friday filed draft papers with the capital markets regulator Securities and Exchange Board of India for an initial public offering.

The IPO comprises a fresh issue of shares worth Rs 450 crore ($67 million) and an offer for sale of 12.71 million shares by shareholders, shows the draft red herring prospectus.

The company said it also plans to raise as much as Rs 150 crore by selling 6 million shares ahead of the IPO. If the pre-IPO private placement goes through, the company will reduce the IPO size.

Back-of-the-envelope calculations show that the total size of the IPO would be around Rs 800 crore ($120 million) if the company doesn’t sell any shares in the pre-IPO placement.

VCCircle had in September last year reported that Tejas was looking to float an IPO of $100 million to $150 million.

The company could be looking at a valuation of around Rs 2,000 crore in the IPO, according to VCCircle estimates.

Snapshot of the issue

The issue

The company plans to use Rs 45.28 crore from the fresh IPO proceeds toward capital expenditure needs such as payment of salaries and wages. It intends to use Rs 303 crore toward working capital requirement and an undisclosed quantum for general corporate purposes.

The shareholders who plan to sell their holdings in the IPO include Cascade Capital Management Mauritius, Intel Capital, private equity firm Frontline Strategy. A number of individuals are also selling their shares. These include CEO Sanjay Nayak and CTO Kumar N Sivarajan.

Cascade Capital is believed to be controlled by co-founder Gururaj ‘Desh’ Deshpande, who had become a billionaire during the dotcom boom at the turn of the century. Deshpande is also a brother-in-law of Infosys Ltd co-founder NR Narayana Murthy. Cascade owns 31.38% of Tejas.

Intel Capital, through two entities, holds about a 7.66% stake in Tejas while Frontline, through its India Industrial Growth Fund, owns 3.61%. Frontline is fully exiting while Intel Capital is selling part of its stake, according to the draft prospectus.

Other main shareholders of Tejas include Samena Spectrum Co (20.09%) and Mayfield (10.21%). 

The company

The company was founded in 2000 by Deshpande and Nayak with seed funding from ASG Omni. It makes optical networking products and has customers in 60 countries. It caters to telecom operators, Internet service providers, utility companies, defence firms and government entities.

For 2015-16, Tejas Networks ranked as the second-largest optical networking products company with a market share of 15% in India. Nearly 70% of its workforce is deployed in R&D.

In January 2015, Tejas raised $3.94 million from Mayfield, Goldman Sachs, Argonaut and Osher LP. In 2012, it raised $7.8 million from Cascade, Frontline Ventures, Goldman Sachs, Intel Capital, Mayfield and Argonaut Ventures, according to VCCEdge, the data research platform of VCCircle.

Its last major fundraise was worth Rs 90 crore ($24 million then) from Goldman Sachs PE in 2007. It also got some funding in 2007 from Nortel Networks, which later filed for bankruptcy.

Tejas acquired Israeli firm Ethos Networks in 2010 for an undisclosed sum.

Financials

The company reported a consolidated net profit of Rs 16.46 crore for the six months ended 30 September 2016 on net revenue from operations of Rs 350.77 crore.

For 2015-16, the company reported a consolidated net profit of Rs 29 crore on consolidated net revenue of Rs 627.45 crore, according to the draft prospectus.

A year prior, the company reported a loss of Rs 17.88 crore on total revenue of Rs 386.82 crore.

Bankers

Axis Capital Ltd, Citigroup Global Markets India Pvt. Ltd, Edelweiss Financial Services Ltd, and Nomura Financial Advisory and Securities (India) Pvt. Ltd are managing the IPO.

Lawyers

Cyril Amarchand Mangaldas is the legal counsel to Tejas Networks while Trilegal and Clifford Chance are Indian and international legal counsels, respectively, to merchant bankers managing the IPO.

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Tejas Networks files for IPO; Frontline PE, Intel Capital to sell stake

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