IPO Analysis: C.E. Info Systems Ltd

IPO Rating: AVOID 

About the issue: 

The company is engaged in the software business and is a provider of advanced digital maps, geospatial software and location-based IoT technologies. The company is coming out with its initial public offering (IPO) of equity shares of the face value of Rs 10 per equity share. The maiden offer comprises an offer for the sale of shares worth Rs 1,039.61 crore by existing investors, according to its red herring prospectus. The price band of the issue has been fixed at Rs 1000 to Rs 1033 per equity share. The IPO opening date is December 9, 2021, while it will be closing on December 11, 2021. The issue will be listed on the exchange on December 21, 2021. The IPO market lot size is 14 shares. A retail-individual investor can apply up to a maximum of 13 lots (182 shares or Rs 188,006). The objects of the offer are to carry out the offer for the sale of 10,063,945 equity shares and achieve the benefits of listing the equity shares on the stock exchanges. 

MapmyIndia IPO Details: 

About the company:  

MapmyIndia is a leading provider of advanced digital maps, geospatial software, and location-based IoT technologies in India. The company is a data and technology products and platforms company, offering proprietary digital maps as a service (MaaS), software as a service (SaaS), and platform as a service (PaaS). The company provides products, platforms, application programming interfaces (APIs), and solutions across a range of digital map data, software, and IoT for the Indian market under the (MapmyIndia) brand, and for the international market under the (Mappls) brand.  

The digital maps offered by the company cover 6.29 Mn Km of roads in India, representing 98.50 per cent of India's road network. The company's digital map data provides location, navigation, analytics, and other information for 7,933 towns, 6,37,472 villages, 17.79 Mn places across many categories such as restaurants, retail shops, malls, ATMs, hotels, police stations, electric vehicle charging stations, etc., and 14.51 Mn house or building addresses. The company's 'RealView' maps provide actual roadside and on-ground views based on over 400 Mn geo-referenced photos, videos, and 360-degree panoramas across India.  

The company serves the BFSI, telecom, FMCG, industrials, logistics, and transportation sectors. MapymyIndia has also entered into various memorandums of understanding with key government organizations such as the Indian Space Research Organization (ISRO), NITI Aayog, National eGovernance Division, Ministry of Electronics and Information Technology, and Government of India. Some of the company's customers include PhonePe, Flipkart, Yulu, HDFC Bank, Airtel, and Hyundai. The subscription fee, royalty, and annuity payments together contributed over 90 per cent of the company's revenue for Fiscal 2021.  

Competitive Strengths:  

Pioneers of digital mapping in India having an early mover advantage  

Leading the B2B and B2B2C market for digital maps and location intelligence in India  

Proprietary technology and network effect resulting in competitive edge  

Independent, global geospatial products and platforms company with strong data governance  

Prestigious customers across sectors with strong relationships  

Consistent profitable financial track record  

 
Company Financials:  

According to its red herring prospectus, It has a high operating leverage in our business due to a low variable cost base. Its Contribution Margin expanded from 76 per cent in Financial Year 2019 to 82 per cent in Financial Year 2020, to 83 per cet in Financial Year 2021. Its EBITDA margins for Financial Years 2019, 2020 and 2021 were 29, 25 and 35 per cent, respectively, with EBITDA growing at a CAGR of 16 per cent. The net cash flows generated from operating activities for Financial Years 2019, 2020 and 2021 were Rs 26.8 crore, Rs 26.7 and Rs 83.2 crore, respectively. 

Recommendation:  

As per the F&S report, the company is India’s leading provider of advanced digital maps, geospatial software and location-based IoT technologies. Having pioneered digital mapping in India in 1995, it has earned its market leadership position in this industry and built a strong moat by capitalizing on its early mover advantage, developing proprietary and integrated technologies, full-stack product offerings, continuous innovation and a robust sustainable business model.   

It derives the majority of revenue from B2B and B2B2C enterprise customers. Its business model is to charge customers fees per period based on per vehicle, per asset, per transaction, per use case, per user, as applicable. These take the form of subscription fees, royalties, annuities in return for providing licenses and usage rights to its proprietary digital MaaS, PaaS and SaaS offerings. Its returns on capital employed were 50, 41, and 110 per cent, respectively for Financial Years 2019, 2020 and 2021. As per the F&S Report, the total Indian addressable market of digital maps and location-based intelligence services is expected to grow to Rs 474.9 billion in 2025 at around 15.5 per cent CAGR from 2019 to 2025.   

The net profit margins have gone up from about 20.5 per cent in FY19 to about 38.12 per cent as of September end 2021. The returns on capital employed have gone above 100 per cent. Clearly, the growth has been supernormal and the question of sustainability kicks in. Also, the P/E of the company is high at 68.54. The existing shareholders alone are offering the shares in absence of a fresh issue. And so, even though the IPO appears attractive, we advise investors to wait for a bargain and then buy the scrip. Hence, we recommend to AVOID investing in the IPO.