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TBO Tek IPO opens today: Should you subscribe to ₹1,551 crore issue?
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Analyst said that TBO Tek has demonstrated a strong financial turnaround after FY21, with consistent growth over the past two fiscal years, but potential risks require careful consideration.
The initial share sale of TBO Tek, a B2B travel distribution platform, kicked off for public subscription today (May 8), and will close on May 10. Through the issue, the company plans to raise around ₹1,551 crore.
The company has fixed a price band in the range of ₹875-920 per share for its maiden public offer. Investors can bid for a minimum of 16 equity shares in one lot and in multiples thereafter.
TBO Tek IPO review
Mehta Equities: Subscribe for listing gains
Analysts at Mehta Equities have recommended investors to ‘Subscribe’ to the TBO Tek offer for listing gains only. They believe the IPO gives investors a unique opportunity to invest in a leading player in the global travel and tourism industry, which offers a comprehensive platform that creates significant value for both suppliers and buyers.
“We think TBO Tek’s platform operates on a network effect model, benefiting both suppliers and buyers by granting instant access to a global partner network,” the brokerage said.
Mehta Equities also believes TBO Tek has developed a capital-efficient business model with strong cash generation, bolstered by strategic acquisitions such as Island Hopper and BookaBed which have enabled them to expand its partner network, enhance capabilities and consolidate its position in key markets, such as Maldives and the UK.
Swastika Investmart: Subscribe
Shivani Nyati of Swastika Investmart said TBO Tek stands out with its modular and scalable proprietary technology platform. This, Nyati said, allows the company to generate and leverage valuable data assets while operating on a capital-efficient business model.
Further, the analyst said the company has demonstrated a strong financial turnaround after FY21, with consistent growth over the past two fiscal years. However, potential risks require careful consideration, she said.
Nyati said the company relies on a limited range of suppliers and third-party systems, which could pose vulnerabilities. Additionally, the tourism industry itself is highly sensitive to external factors and intensely competitive.
“While the P/E (price-earnings) valuation of 64 times appears fully priced, the lack of direct peers makes a definitive comparison challenging. Considering TBO Tek’s growth potential and potential listing gains, we recommend a subscribe rating for this IPO,” Nyati stated.
Tarun Singh of Highbrow Securities said that TBO Tek’s IPO, marked by a substantial offer for sale (OFS), presents a complex scenario for potential investors.
“This global travel distribution leader, set to expand following FY2023’s achievements, navigates an industry vulnerable to global uncertainties, highlighted during the pandemic and current geopolitical tensions limiting travel. Its financials reflect such volatility, suggesting a sensitivity that may not sit well with the steep valuations sought, offering limited medium-term gains for shareholders,” Singh said.
Furthermore, he said the IPO’s structure, heavily leaning on an OFS, and the modest proceeds from the fresh issue raise questions about its adequacy for TBO Tek’s operational scale.
TBO Tek IPO details
The offer includes fresh equity of ₹400 crore and an offer for sale (OFS) of up to 1.25 crore shares by promoters and investors.
Under the OFS, promoters Gaurav Bhatnagar, Manish Dhingra, LAP Travel and other selling shareholders TBO Korea, Augusta TBO will offload the shares.
Currently, promoters own a 51.26% stake in the travel distribution platform and 46.43% shares are held by the public shareholders, while TBO ESOP Trust, the non-promoter non-public shareholder has 2.31% shareholding.
Augusta TBO is the largest public shareholder with a 19.53% stake, followed by private equity firm General Atlantic with a 15% stake and TBO Korea 11.06%.
TBO Tek IPO structure
As much as 75% of the issue has been reserved for qualified institutional buyers, 15% for non-institutional investors, and the remaining 10% for retail investors.
TBO Tek IPO objective
The capital raised from the fresh issue will be used for the growth and strengthening of the platform by adding new buyers and suppliers, unidentified inorganic acquisitions, and general corporate purposes.
Competitive strengths
– Platform creating network effect with interlinked flywheels to enhance the value proposition for partners.
– Modular and scalable proprietary technology platform.
– Ability to generate and leverage large data assets.
– Founders’ led company supported by an experienced professional management team.
– Capital-efficient business model with a combination of sustainable growth.
Key concerns
– The worldwide travel and tourism industry is highly sensitive.
– It is dependent on a limited range of suppliers for a significant portion of its gross transaction value.
– Business is exposed to pricing pressure from suppliers.
– It operates in a highly competitive industry.
– It relies on various third-party systems for many of the services and failure from their side may impact its business.
– Its international operations are subject to risks that are specific to each country and region.
Business overview
TBO Tek offers travel inventory according to the needs of its customers and supports a wide range of currencies along with forex help. The firm enables sellers to show and market their inventory and set prices for buyers.
The New Delhi-based company offers services to hotels, airlines, car rentals, transfers, cruises, insurance and rail companies. It also offers services to retail customers such as travel agencies and independent travel consultants, and corporate customers.
Financials
TBO Tek, which follows an asset-light business model, posted healthy growth in its financials with profit growing 340% year-on-year to ₹148.5 crore in the year ended March FY23 and revenue from operations surging 120% to ₹1,064.6 crore as against the previous year.
In the nine months period ended December 2023 (the part of FY24), the company has already surpassed its FY23 profits and recorded over ₹1,000 crore income on the topline front. Its net profit rose 28% year-on-year to ₹154 crore and revenue jumped 31% to ₹1,024 crore, compared to the nine-month period of previous fiscal FY23.
TBO Tek IPO BRLM
Axis Capital, Goldman Sachs (India) Securities, Jefferies India, and JM Financial are the book-running lead managers while Kfin Technologies is the registrar to the issue.
TBO Tek IPO allotment, listing date
The company will finalise the basis of allotment of IPO shares by May 13 and the equity shares will be credited to demat accounts of successful investors by May 14. Investors can start trading in its equity shares on the BSE and NSE with effect from May 15.
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