Trafiksol ITS BSE SME IPO review (Apply)

•    The company is engaged in providing comprehensive solutions for intelligent transportation systems and automation.
•    It also provides services like related software development, consultancy etc.
•    The company has also entered defense industry to provide its services.
•    Based on FY24 earnings, the issue relatively appears reasonably priced.
•    Investors may park funds for medium to long term.

ABOUT COMPANY:
Trafiksol ITS Technologies Ltd. (TITL) is incorporated with an object of providing comprehensive solutions for Intelligent Transportation Systems and Automation, including software development, consultancy, and supply services. Its offerings encompass ready-made and customized software solutions, operating systems, business applications, and computer games across all platforms. Its consultancy services focus on analysing user needs and problems to deliver tailored software solutions, including made-to-order software and ongoing maintenance. 

The company excels in every aspect of Intelligent Transportation Systems, spanning from initial requirements assessment and solution identification to seamless implementation, business integration, and system fine-tuning. With a wealth of expertise and adaptable strategies, the company assists clients in revitalizing and reshaping their enterprises for unparalleled success. TITL has garnered a robust standing for providing top-tier industrial services to clientele throughout India. The company distinguishes itself by adeptly harmonizing business strategies with personnel and procedures, thereby guaranteeing that clients' strategic planning and execution yield favourable outcomes for their organizations. With an extensive array of consulting and design offerings, the company specializes in the design, administration, and incorporation of Intelligent Transportation Systems (ITS) for roads and tunnels. Its solutions are characterized by their security, resilience, and scalability, custom-crafted to precisely match the distinct requirements of clients in the domains of road infrastructure, tunnel management, and urban environments.

TITL is a specialized EPC (Engineering, Procurement, and Construction) contractor that undertakes a variety of projects in fields such as Advanced Traffic Management Systems (ATMS), Toll Management Systems (TMS), and Tunnel Management Systems. As an EPC contractor, it provides a full spectrum of services that encompass the design, engineering, procurement, and construction of large-scale infrastructure projects. This comprehensive approach ensures that all phases of the project are seamlessly integrated and managed by a single entity. 

Additionally, the company often handles the commissioning phase, ensuring that all systems are fully operational and meet the specified requirements before project completion. This turnkey solution is designed to streamline project execution, minimize risks, and deliver high-quality, efficient infrastructure solutions tailored to meet the specific needs of clients. TITL contracts in traffic management, toll management, and tunnel management involve the design, implementation, and construction of infrastructure projects aimed at improving transportation efficiency, safety, and revenue collection. Advanced Traffic Management System (ATMS) involves the design, installation, and integration of Intelligent Transportation Systems (ITS) aimed at improving traffic flow, safety, and efficiency on roadways. 

These projects may include the implementation of traffic signal systems, dynamic message signs, traffic surveillance cameras, vehicle detection systems, and traffic management software. The company has ongoing ATMS projects like development of Six Lane Badakumari-Karki Section of NH-120-CD Road under Raipur-Visakhapatnam Economics Corridor, Four Lanning of Ahmednagar-Mirajgain-Karmala-Tembhurni section of NH-561 A under Bharatmala Pariyojana and Construction of 6-Lane access-controlled Greenfield highway as a part of Amritsar- Jamnagar Economic Corridor in the State of Rajasthan on EPC mode under Bharatmala Pariyojana (Phase-I).

TITL has expanded its expertise into the defense industry, becoming a leading provider of innovative and reliable solutions to meet the dynamic needs of defense organizations. With a commitment to enhancing defense capabilities, it delivers cutting-edge technologies and services across various defense sectors, ensuring operational readiness and mission success. As of March 31, 2024, it had 104 employees on its payroll.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden book building route IPO of 6410000 equity shares of Rs. 10 each to mobilize Rs. 44.87 cr. at the upper cap. It has announced a price band of Rs. 66 - Rs. 70 per share. The issue opens for subscription on September 10, 2024, and will close on September 12, 2024. The minimum number of shares to be applied is for 2000 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE SME. The issue constitutes 26.34% of the post-IPO paid-up capital of the company. From the net proceeds of the IPO, the company will utilize Rs. 17.70 cr. for purchase of software, Rs. 5.50 cr. for repayment/prepayment of certain borrowings, Rs. 10.40 cr. for working capital, and the rest for general corporate purposes. 

The IPO is solely lead managed by Ekadrisht Capital Pvt. Ltd., and Maashitla Securities Pvt. Ltd. is the registrar to the issue. SS Corporate Services Ltd., is the Market Maker for the company. 

Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 34.00 - Rs/ 5100 per share between December 2023 and February 2024. It has also issued bonus shares in the ratio of 149 for 1 in January 2024. The average cost of acquisition of shares by the promoters is Rs. Negative. 

Post-IPO, company's current paid-up equity capital of Rs. 17.93 cr. will stand enhanced to Rs. 24.34 cr. Based on the upper price band of the IPO, the company is looking for a market cap of Rs. xx cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit of Rs.28.02 cr. / Rs. 2.05 cr. (FY22), Rs. 36.75 cr. / Rs. 4.78 cr. (FY23), and Rs. 66.09 cr. / Rs. 12.09 cr. (FY24). Its financial performance so far indicates the likely trends ahead.

For the last three fiscals, the company has reported an average EPS of Rs. 4.47 and an average RoNW of 35.58%. The issue is priced at a P/BV of 3.66 based on its NAV of Rs. 19.11 as of March 31, 2024, and at a P/BV of 2.16 based on its post-IPO NAV of Rs. 32.46 per share (at the upper cap).

If we attribute FY24 earnings on post-IPO fully diluted equity capital, then the asking price is at a P/E of 14.08. The issue relatively appears reasonably priced.

For the reported periods, the company has posted PAT margins of 7.35% (FY22), 13.17% (FY23), 18.38% (FY24), and RoCE margins of 21.08%, 30.71%, 26.23% respectively for the referred periods. 

DIVIDEND POLICY:
The company has not paid any dividends for the reported periods of the offer document. It will adopt a prudent dividend policy post listing, based on its financial performance and future prospects. 

COMPARISION WITH LISTED PEERS:
As per the offer document, the company has no listed peers to compare with. 

MERCHANT BANKER'S TRACK RECORD:
This is the 4th mandate from Ekadrisht Capital in the ongoing fiscal.  From the 3 listings so far, all listed with a premiums ranging from 73.68% to 225.76% on the listing date.