7/31/2019 MFS IPO Val (1)

1/30

[Type the document subtitle]

Christ University Institute of Management

MANAGEMENT OF FINANCIAL SERVICES ASSIGNMENT

Submitted To: Submitted By:

Prof. Seema C.

(Asst. Professor)

Vinay Goel (1121328)

Sudhanshu Garg (1121403)

Swathi Ajayan (1121440)

Rajat Kukreti (1121511)

Kevin Isaac (1121530)

Meenu Joseph (1121558)

7/31/2019 MFS IPO Val (1)

2/30

AN OVERVIEW: TAKSHEEL SOLUTIONS LTD.

Founded in 1999, Taksheel is a cutting-edge of technology driven company focused

on providing innovative, highly robust, extensive scalability of investment for products and

solutions offered. Taksheel focused vitally on business sectors such as Finance, Information

Technology and Telecom. Entire offering supports customization and flexibility to

customers requirement and provides extensive support with pre-defined SLAs.

Taksheel core management team from versatile background with decades of

experience from industries such as BFSI, Telecom, IT as spine of company focused to build

taksheel as market leader and to create bench mark as trendsetter. Taksheels Wealth

Management Technology Solutions is built on Service Oriented Architecture (SOA) enabling

us to rapidly deploy a customized version of our solution to help them better manage their

customers assets, increase their sales, improve their service and generally lower their

operating costs. In addition, our Financial Technology Solutions practice provides end-to-end

cycle of designing, developing and implementing the clients' software applications in a wide

variety of architectures and platforms.

Wealth Management: Wealth management to financial institutions offerings such as Asset

and Investment managers, Brokerage houses, Insurance, Hedge funds, Trusts and FamilyOffices.

Telecom: Enterprise IP telephony Solutions, Carrier Switching & Billing Solutions, Contact

Center Solutions, IVRS, SMSC, Voice & Video Conference solutions, Chat platforms,

Content Delivery Platforms, Closed Private GSM network (CPMN) and more.

Information Technology: Enterprise Network Implementation (LAN,WAN,MAN), OS

migration to open source, Software Development, Application customization, Managed IT

services (Desktop, Server, Network, NOC support) Server Implementation & Support

(Windows, Unix, Sun, Linux) Data Storage Network (SAN, NAS) Network & Data Security

Solutions, Network Monitoring System, NOC support Systems, Data center and Disaster

recovery center implementation, CRM solution and more.

Taksheel offers cost-effective solutions through its Onsite, Offsite and Offshore development

methodology by leveraging its global delivery model and utilizing delivery centers based in

Hyderabad, India, and New Jersey, USA. Some of our customers include Merryll Lynch and

Bank of America.

7/31/2019 MFS IPO Val (1)

3/30

Fundamental InformationAmount

(Mar12)Technical Information

Amount

(06/08/12)

Net Sales (Rs. Mill) 1,721.45 Market Cap (Rs. Mill) 242.30

Net Profit (Rs. Mill) 146.81 Book Value (Rs. Mill) 5.54

Net Worth (Rs. Mill) 906.01 EPS (Rs. Mill) 1.67

Total Debt (Rs. Mill) 85.91 Face Value (Rs.) 10.00

Total Assets (Rs. Mill) 992.10 Debt Equity Ratio 0.09

7/31/2019 MFS IPO Val (1)

4/30

EVALUATING TAKSHEELs IPO:

IPO was evaluated using several following parameters:

1. Is this an IPO or an FPO?

Taksheel Solutions Ltd. came out with their IPO (Initial Public Offer) for the very

first time in 2011. Bid/Issue was opened on 29thSept11 and closed on 24thOct11.

The company decides the price and later the collective secondary market discovers the

true price post-listing after more information inflows/ analysis.

2. Is this a fixed-price or a book-building issue?

This Issue is being made in terms of Regulation 26 (1) of the SEBI ICDR Regulations

and through the 100% Book Building process wherein up to 50% of the Issue shall be

allocated on a proportionate basis to Qualified Institutional Buyer (QIB) Bidders,

out of which 5% shall be available for allocation on a proportionate basis to 20

Mutual Funds only and the remaining QIB portion shall be available for allocation on

proportionate basis to all QIB Bidders, including Mutual Funds, subject to valid Bids

being received from them at or above the Issue Price. Further, not less than 15% of

the Issue shall be available for allocation on a proportionate basis to Non-Institutional

Bidders and not less than 35% of the Issue shall be available for allocation on a

proportionate basis to Retail Individual Bidders, subject to valid Bids being received

from them at or above the Issue Price.

The final price at which equity shares will be issued and allotted in terms of the

prospectus as determined by the company in consultation with book running lead

manager on the Pricing Date. The Price Band of a minimum price of Rs. 130/- (Floor

Price) and the maximum price of Rs. 150/- (Cap Price) and include revisions thereof.

3. Is this a good promoter?

Taksheel is promoted by Mr. Pavan Kumar Kuchana, Mr. Ramaswamy Kuchana

(Individual Promoters) and Lexicon Private Limited (Corporate Promoter).

Lexicon Private Limited was incorporated on June 30, 1998 in Port Louis, Mauritius

as Kuchana SoftwareSolutions Limited and subsequently changed the name of our

company as Lexicon Private Limited w.e.f. October 17, 2000. Lexicon operates as

Global Business License Category 1, as per Financial Services Commission of

Mauritius.

7/31/2019 MFS IPO Val (1)

5/30

4. What is the promoters background and experience?

a) Individual Promoters:

Mr. Pavan Kumar Kuchana, 43 years, is a Chairman & Managing

Director of our Company. He holds Bachelors Degree in Electronics and

Tele-communications from Nagpur University and Masters in Computer

Science from City College of New York (CCNY), City University, New

York. Prior to joining Taksheel, he founded IBSS Inc. in New Jersey in

1995. Mr. Pavan has more than 16 years of experience in the industry.

Since inception of our Company, Mr. Pavan has taken an active role to

build a global organization with a focus on delivering value to customers. In

the year 2000, he became the Director of our Company and in the year

2006, he was appointed as the Managing Director. Mr. Pavan provides

Taksheel with a track record in developing "go to market" models,

leveraging his skills in defining market opportunities, optimizing

Company's resources to deliver solutions to these markets, and to build

substantial barriers to entry.

Mr. Ramaswamy Kuchana, 68 years, is the core promoter of our

Company. Mr. Ramaswamy was joined the forest department under the

Government of Andhra Pradesh in 1964 and has put in more than three

decades of service before retiring as Forest Range Officer. He is the father

of Mr. Pavan Kumar Kuchana, Chairman and Managing Director of our

Company. He was instrumental in setting up the offshore development

center at Hyderabad, India, and in procuring the land from Government of

Andhra Pradesh, for construction of the proposed development center at

Warangal. His leadership skills and administrative experience were of

immense help to our Company, in its formative years.b) Corporate Promoter:

Lexicon Private Limited incorporated on June 30, 1998 in Port Louis,

Mauritius as Kuchana Software Solutions Limited and subsequently

changed the name of our company as Lexicon Private Limited w.e.f.

October 17, 2000. Lexicon operates as Global Business License Category 1,

as per Financial Services Commission of Mauritius. The Registered Office

of our Company is located at Level 11, One Cathedral Squares, Port Louis,

and Republic of Mauritus.

7/31/2019 MFS IPO Val (1)

6/30

5. Is the promoter a liability or an asset?

It can be better understood from the past defaults/ complaints against the company.

According towww.watchoutinvestor.com,

SEBI made following regulatory charges against Taksheel:

Misutilized issue proceeds

Did not make proper disclosure and made mis-statements of related parties in

prospectus

SEBI made following regulatory actions/ date of order against Taksheel:

Prohibited from raising any further capital in any manner, directly or indirectly

from 28-dec-2011 till further orders

Directed company to call back ICDS and/or other amounts and deposit the

same in an interest bearing escrow account

Debarred/restrained from buying/ selling/ dealing/ IPOs in securities/ specified

SCRIPS directly/indirectly from 28-dec-2011 till further orders

Directed BSE, NSE, NSDL and CDSL to ensure that directions issued vide

order are strictly enforce

Directed BSE and NSE to permit members to square off their existing open

positions if any, in F&O segment and ensure that no fresh positions are created

6. What is the status of the issuing company?

Taksheel Solutions Ltd., India is a Main company and its Holding company is a

Mauritius based, Lexicon Private Limited.

7. How has been the performance of the company?

Number of years in the business: 13 years (1999 to 2012)

Size of the company: Rs. 24.23Cr (Market Cap)

Growth rate: CAGR 65.49%

8. Are the financials, specially the recent ones, reliable?

Taksheels financial reports are audited every year and considered reliable.

Financial Statements are prepared with going concern concept and in accordance

with GAAP

Depreciation on the Fixed Assets of the Company is provided on straight line

Method

http://www.watchoutinvestor.com/http://www.watchoutinvestor.com/http://www.watchoutinvestor.com/http://www.watchoutinvestor.com/

7/31/2019 MFS IPO Val (1)

7/30

Fixed Assets are stated at the cost of acquisition including incidental costs related

to acquisition, installation and other borrowing cost attributable to bringing the

assets to commercial production are capitalized and shown at net of accumulated

depreciation.

Long term Investments are carried at cost and provisions is made to recognize

any decline. Current investments are carried at the lower of cost and quoted/ fair

value, computed category wise.

Taksheel generally follows mercantile system of accounting

9. What to look for in the Balance Sheet?

Fixed Assets: In 2010, Rs. 121.44 Mill and Rs. 121.76 Mill at the end of 2011

Investments: In 2009, Rs. 26.70 Mill and Nil thereafter

Loans & Advances: In 2010, Rs. 177.63 Mill and Rs. 506.12 Mill at end of 2011

Cash Balance: In 2010, Rs. 1.24 Mill and Rs. 60.46 Mill at the end of 2011

10.What are the key financial parameters/ ratios to look at?

a)Earnings Per Share (EPS):

EPS measures the earnings a company makes for each share in existence. It is

calculated by taking a companys net earnings and dividing them by the number of

shares in issue. A higher EPS is regarded as better, than a low EPS as it means

investors are earning bigger profits for every share they own. Investors look not

only at the current EPS but also at estimates of future EPS to get an idea of the

profits they will earn in future years. Its current EPS stands at Rs. 1.67 Mill

b)Return on Capital (ROC):

ROC helps investors assess how hard a company is making its assets work. It is

calculated by taking profits before interest and tax are removed and dividing this

figure by the capital employed. Broadly speaking, the higher the return on capital,

the more successful a company is. Its current ROC stands at 228.44%

c)EBITDA & EV:

EBITDA is a profit key ratio that looks at the Earnings before Interest, Tax,

Depreciation and Amortization. It is used to assess the operative profitability of a

company. It can used to analyse companies that reinvest heavily in their businesses

by taking the Enterprise Value dividing it by EBITDA. Current y-o-y EBITDAgrowth rate is 225.41% and its EV/EBITDA is 0.09

7/31/2019 MFS IPO Val (1)

8/30

11.How are the Cash Flows?

Cash flow of a Company is a key indicator to show the extent of cash generated from

operations to meet capital expenditure, pay dividends, repay loans and make new

investments without raising finance from external resources. If we are not able to

generate sufficient cash flows, it may adversely affect our business and financial

operations.

Taksheel had negative cash flows in Operating activities, Investing activities and

Financing activities in the past five fiscals. The details of which is summarized below:

12.What is the dividend track record?

Taksheel has not paid dividends in the past three financial years. The amount of future

dividend payments, if any, will depend upon our future earnings, financial condition,

cash flows, working capital requirements and capital expenditures, applicable Indian

legal restrictions and other factors. There can be no assurance that we will be able to

paying dividends in future.

13.How has been the performance of the group companies?

Over the past decade, the Indian IT-BPO sector has become the countrys premier

growth engine, crossing significant milestones in terms of revenue growth,

employment generation and value creation, in addition to becoming the global brand

ambassador for India. However, the industry performance was affected by these

recessionary headwinds as the clients cut their IT budgets, cancelled deals, delayed

payments and deals, went bankrupt while others renegotiated pricing, looking for

severe pricing cuts and stretching the dollar.

The changing demand outlook, customer conversations and requirements acted as a

driver to build in greater efficiencies and flexibility within the service delivery and the

business models one which is here to stay 2009 was also instrumental for more

ways than one for the industry. While the industry displayed tenacity and resilience, it

also commenced its journey to achieve its aspirations in view of the altered landscape.

7/31/2019 MFS IPO Val (1)

9/30

The advent of 2010 has signalled the revival of outsourcing within core markets,

along with the emerging markets increasingly adopting outsourcing for enhanced

competitiveness. Key demand indicators in the last two quarters such as increased

deal flow, volume growth, stable pricing, and faster decision making has made the

industry post good results.

The sector is estimated to aggregate revenues of USD 88.1 billion in FY2011, with

the IT software and services sector (excluding hardware) accounting for USD 76.1

billion of revenues. During this period, direct employment is expected to reach nearly

2.5 million, an addition of 240,000 employees, while indirect job creation is estimated

at 8.3 million. As a proportion of national GDP, the sector revenues have grown from

1.2 per cent in FY1998 to an estimated 6.4 per cent in FY 2011. Its share of total

Indian exports (merchandise plus services) increased from less than 4 per cent in

FY1998 to 26 per cent in FY2011.

14.How significant are the related party transactions?

Taksheel in the course of business, entered into transactions with related parties that

include entities forming part of our Promoter Group and Group Companies. The

cumulative figure of related party transactions for the last three financial years ended

March 31, 2009, 2010 and 2011 is as follows:

While company believe that all such transactions have been conducted on an arms-

length basis and contain commercial terms, there can be no assurance that we could

not have achieved more favourable terms had such transactions not been entered into

with related parties. Furthermore, it is likely that we will continue to enter into related

party transactions in the future. There can be no assurance that such transactions,

individually or in the aggregate, will not have an adverse effect on our financial

condition and results of operations.

7/31/2019 MFS IPO Val (1)

10/30

15.Who is on the Board of Directors?

16.What are the products/ services of the company?

Taksheels solutions/ services, in general technical areas, include the following:

Wealth Management Solutions

Telecom Solutions

Application Development & Maintenance

Data Warehousing & Business Intelligence

Offshore Outsourcing.

Company is specialized in and developed products in IP multimedia subsystem(IMS),

Telecom Signaling Integrated Standard Digital Network (ISDN), Channel Associated

Signaling (CAS), Signaling System 7(SS7), Short Message Service Centre (SMSCs),

Least Cost Routing system (LCR), Optimal Routing Solutions (ORS), Voice Mail

Servers (VMS) and other Value Added Services (VAS) content delivery platforms.

Our product portfolio covers enterprise IP-Telephony, Unified Communication

System, Carrier Grade solutions, Wireless VOIP solutions, IVRS, Voice Loggers,

Video Conferencing, NMS and other IT Solutions.

Company majorly focused on providing customized solution in the area of Enterprise

IP-Telephony, Unified Messaging System, Carrier Grade solutions for wholesale

retail clients over VOIP, VOIP Integrated Wireless solutions, IVRS, Voice Loggers,

Video Conferencing, Network Monitoring & Management, Data Security Solutions.

Our products range covers Analog, Digital & GSM PCI telephony Interface cards,

Multi-functional IP Phones (Basic Executive and Advanced), Analog and GSM

Channel banks.

7/31/2019 MFS IPO Val (1)

11/30

17.What about technology?

2010 was a year of steady growth for the technology and related services sector, with

worldwide spending expected to exceed USD 1.6 trillion, a growth of nearly 4 per

cent over 2009. Software products, IT and BPO services continued to lead, accounting

for over USD 1 trillion - 63 per cent of the total spend. Hardware spends at USD 599

billion, accounted for the balance 37 per cent of the worldwide technology spending.

Taksheels vision is of simplifying Information Technology for business. It has since

than evolved to emerge as a specialized solutions provider offering Wealth

Management Technology Solutions, Telecom Solutions, Business Intelligence, Data

Warehousing, Application Development and Application Maintenance. Its in general

technical areas, include the following:

Verticalised Solutioning: A number of organizations have restructured

themselves around verticals and Centres of Excellences - so as to develop and

deliver end to end services keeping in mind customer needs, creating products

aimed at growing emerging markets and creating a substantial revenue impact

for them. These Verticalised business units act as a source of innovation and

development of proof of concept solutions.

Technology enablement: Development of solutions around platforms, cloud

based products integrating business intelligence, and application development

tools are proving to be game changers for an increasing set of customers. This

is also prompting customers to move from CAPEX to OPEX based models.

Process innovation/ re-engineering: Coupled with automation and six sigma

skills, incremental set of enhancements imbibing best in class learning and

practices in established service delivery processes also have the ability to

create wide ranging transformation for clients.

18.What about customers?

Customers will demand 'transformative' value propositions, that go beyond lower-cost

replication; as technology creates virtual supply chains, customers will require a

seamless experience across time zones and geographies; increasing demand for

innovation and end-to-end transformation. The year saw wide ranging contract

restructuring exercises, and deal size reductions as buyers came to terms with new

business models and budgetary constraints. However, multi-sourcing saw higher

adoption, precipitated by the increased maturity of Indian providers.

7/31/2019 MFS IPO Val (1)

12/30

Recent global M&A activity in the sector indicates select acquisitions by established

service providers to enhance skill and scale. While cost and talent still remain

essential considerations for global sourcing, savvy customers are constantly

demanding more - growth markets, flexibility and innovation. With customers

demanding more immediate value from IT and forward-looking strategies that support

growth and innovation, service providers are adopting agile methods focusing on

operational excellence through ongoing innovation, diversification, renewed

partnerships/alliances and new business models.

19.What is the size of the issue?

Public issue of 55,00,000 equity shares of Rs. 10/- each of Taksheel Solutions Limited

(the company, or our company, or the issuer) for cash at a price ofRs. [] per

equity share (including a share premium of Rs. [] per equity share) aggregating to Rs.

[] lakhs (the issue). The issue will constitute 25.17 % of the fully diluted post issue

paid-up capital of our company.

20.What will be the public float after the issue?

Number of outstanding shares of the company is around Rs. 1.66 Cr.

21.What are the promoters holding after the issue?

Holder's Name No of Shares %Share Holding

Promoters 1106172 5.06%

22) Is the price justified?

The P/E has been calculated on recent years EPS as 9.08 on the upper band while on

weighted average of EPS its calculated to be around 14.At upper end of price band of Rs.150

per share,offer to public is being made at PE 9.1 times which is quite a stretch,considering

companies are currently trading in mid single digit PEs.This company is being a smaller

player,having registered a respectable topline only in the previous year doesnt deserve such

high PEs

7/31/2019 MFS IPO Val (1)

13/30

23) What are the objectives of the issue?

Objects of the issue look structured as the company plans to use Rs 22 crore for acquiring

firms in a similar line of business,to set up 2 software development centers at SEZs in

Hyderabad and Warangal for aggregate at Rs 17.8 Crore and working capital needs of Rs

12.8 crore.The acquisition target has not been finalised and just a chest is created for

inorganic growth opportunities.Since the company has net worth of 91 crore,which will

increase to over 160 crore ,post IPO ,it can tap debt route to fund acquisitions as it had net

debt on only rs 2.5 crore.

24) Are any major government approvals pending for the company?

The company has already received the necessary consents, licenses, permissions and

approvals from the Government and various governmental agencies required for the present

business (as applicable on date of the Red Herring Prospectus).

25) Are there any significant trademark/brand/copyright issue?

At the time of the IPO they had applied for a trademark which was pending before the

trademark registry, Chennai. They had applied for registering trademarks, namely tagline of

the company and logo. The company logo and the tagline has been registered.

26) Where is the company listing?

The company listed in both the major exchanges of India i.e. NSE and BSE with a combine

turnover of around 9.13 crores subscription.

27) Is the company/ group company already listed abroad?

The company has a corporate promoter namely Lexicon Private Limited which was

incorporated on 30thjune, 1988 in Port Louis, Mauritius as Kuchana Software Solutions

Ltd. Lexicon Private Limited is a private company limited by shares and it has not made any

public or rights issue in the preceding three years. Further, no action has been taken against

Icon by any stock exchange or regulatory authority. Lexicon Private Limited is not a sick

company nor is it under winding up.

7/31/2019 MFS IPO Val (1)

14/30

28) Is there any special reservation for shareholders of the company/group companies?

The Company is eligible for the Issue in accordance with Regulation 26(1) of the SEBI ICDR

Regulations. The Issue was being made through the 100% Book Building method wherein up

to 50% of the Issue to Public was available for allocation to Qualified Institutional Buyers on

a proportionate basis (of which 5% shall be available for allocation on a proportionate basis

to mutual funds only). Further, not less than 15% of the Issue to Public was available for

allocation on a proportionate basis to Non-Institutional Bidders and not less than 35% of the

Issue to Public would be available for allocation on a proportionate basis to Retail Individual

Bidders, subject to valid Bids being received at or above the Issue Price.

Industry analysis:

Over the past decade, the Indian IT-BPO sector has become the countrys premier growth

engine, crossingsignificant milestones in terms of revenue growth, employment generation

and value creation, in addition to becoming the global brand ambassador for India. However,

the industry performance was affected by these recessionary headwinds as the clients cut

their IT budgets, cancelled deals, delayed payments and deals, went bankrupt while others

renegotiated pricing, looking for severe pricing cuts and stretching the dollar.

The changing demand outlook, customer conversations and requirements acted as a driver to

build in greater efficiencies and flexibility within the service delivery and the business

modelsone which is here to stay 2009 was also instrumental for more ways than one for the

industry. While the industry displayed tenacity and resilience, it also commenced its journey

to achieve its aspirations in view of the altered landscape. It commenced working on its

agenda to diversify beyond core offerings and markets through new business and pricing

models, specialises to provide end-to-end service offerings with deeper penetration acrossverticals transform the process delivery through re-engineering and enabling technology,

innovate through research and development and drive inclusive growth in India by

developing targeted solutions for the domestic market. All these measures, along with Indias

game changing value proposition have helped India widen its leadership position in the

global sourcing market. The advent of 2010 has signalled the revival of outsourcing within

core markets, along with the emerging markets increasingly adopting outsourcing for

enhanced competitiveness. Key demand indicators in the last two quarters such as increased

deal flow, volume growth, stable pricing, and faster decision making has made the industry

7/31/2019 MFS IPO Val (1)

15/30

post good results. Though full recovery is expected in another two quarters, development of

new growth levers, improved efficiency and changing demand outlook signifies early signs of

recovery.

The sector is estimated to aggregate revenues of $88.1bn in FY2011, with the IT softwareand services sector (excluding hardware) accounting for $76.1bn of revenues. During this

period, direct employment is expected to reach nearly 2.5mn, an addition of 240000

employees, while indirect job creation is estimated at 8.3mn. As a proportion of national

GDP, the sector revenues have grown from 1.2% in FY98 to an estimated 6.4% in FY11. Its

share of total Indian exports (merchandise plus services) increased from less than 4% in

FY1998 to 26% in FY11.

Strengths:

- Wide Range of Wealth Management Solutions

The company provides wealth management technology solutions to global financial

institutions in serving its clients, such as banks, hedge funds, insurance companies,

investment managers, brokerage firms, trusts and family offices. Wealth management

solutions market is a high margin niche in BFSI sector, which is constantly improving the

top-line as well as the bottom-line of the company.

- Advantage of Early Entry

The company is one of the few players that entered in the Wealth Management Solutions

market in its early stages and remain focused on providing cutting edge technology solutions

to the global clients in the market. Wealth management market is an attractive niche segment

in financial services industry. With the cumulative experience and business process exposure

the company is able to offer differentiated and customizable services to the clients.

- Unique, Versatile and State of the art Telecom products

The company is specialized in IP multimedia subsystem(IMS), Telecom Signalling Integrated

Standard Digital Network (ISDN), Channel Associated Signalling (CAS), Signalling System7

(SS7), Short Message Service Centre (SMSCs), Least Cost Routing system (LCR), Optimal

Routing Solutions (ORS), Voice Mail Servers (VMS) and other Value Added Services (VAS)

content delivery platforms. Its product portfolio covers enterprise IP-Telephony, Unified

7/31/2019 MFS IPO Val (1)

16/30

Communication System, Carrier Grade solutions, Wireless VOIP solutions, IVRS, Voice

Loggers, Video Conferencing, NMS and other IT Solutions.

- Depth of experience and knowledge in targeted industry segments

The company has invested in building a team of industry specialists who have an

understanding of the industries in which customers operate and the competencies that they

require. It has established competency centers, across domain, product engineering and

platform expertise that are cross-functional teams which develop capabilities to differentiate,

support and promote core businesses.

Investment Risks

- The company has negative operating cash flow for two out of last five years, if it is not able

to generate sufficient cash flows, it may adversely affect the business and financial

operations.

- The IT services market is characterized by rapid technological changes, evolving industry

standards, changing client preferences and new product and service introductions. The future

success of the company will depend on its ability to anticipate these developments and the

company is successful in maintaining the same. However, going forward it may not besuccessful in anticipating or responding to these advances on a timely basis or, if company

does respond, the services or technologies it develops may not be successful in the

marketplace.

- Discretionary spending on IT products and services in most parts of the world has

significantly decreased due to a challenging global economic environment. This may result in

cancelled, reduced or deferred expenditures for IT services, resulting in lower gross and

operating income of the Company.

- The company has entered into the agreement with one of the investor at the cost of Rs.10Cr

for acquiring 1mn shares of the company. As per the terms, the company is required to buy

back all the shares at Rs.17Cr and also come up with an IPO within 18 months from the date

of allotment. However, the company has failed in doing so and the investor still has not

exercise the option. The company has the liability to buy back the shares & pays the said

amount or else the investor can sell the shares to any other person by mutual agreement at

any amount and the company has to pay the difference in the said amount.

7/31/2019 MFS IPO Val (1)

17/30

- The Company doesnt own the premises where its registered office is situated and legal

formalities for execution and registration of lease deed are yet to be completed. Any

termination or dispute in relation to these leases may have a material adverse effect on the

business operations and results thereof.

BUSINESS CONSTRAINTS

Taksheel focuses on delivering services to clients, mostly financial institutions that are into

wealth management solutions. This segment contributes over 70 per cent of the company's

overall revenues. Not only does it present a concentration risk on a single vertical, there are

other challenges as well.

There are several software companies in the mid-sized category that focus on the BFSIsegment and grow at a steady clip. They do so by delivering services across retail and

wholesale banking, capital markets, insurance, investment banking, and so on. But to focus

on a niche area even within BFSI is a risk for Taksheel, especially given that all asset classes

equity, debt and goldface challenging times. Given the cyclical nature of investments,

wealth management business can swing in fortunes significantly, thus affecting the IT spends

of clients significantly. The company also derives all its revenues from the US, an economy

that faces severe debt and growth challenges. If proposals such as increasing taxes for the

rich, who generally avail of wealth management solutions, go through, and the current

volatile market conditions continue, clients would be faced with lower volumes. The top 10

clients of Taksheel account for over 80 per cent of its revenues which exposes it to the

vagaries of any ramp down and pricing reductions to a significant extent.

The only other vertical that the company focuses on is telecom. This vertical has been in the

doldrums for large and mid-sized software companies for the past couple of years. It is

expected to turn around only after a couple of years, which means that this segment may not

deliver significant revenue growth for the company.

With clients across-the-board engaging in vendor rationalisation, small players such as

Taksheel may face find it difficult to compete with other entrenched players. The company

has had negative cash flow from operations till FY10 as a result of high levels of sundry

debtors and receivables and has only marginally positive cash flow in FY-11.

In short the company has no unique differentiating factor, except for the managements

capability to have a profitable sub-contracting model which does not seem sustainable.

7/31/2019 MFS IPO Val (1)

18/30

PEER ANALYSIS:

Some of the competitors to Taksheel Solutions Ltd include Ybrant Digital Ltd.,Financial

Technologies (India) Ltd. And Hexaware Technologies Ltd.

KEY INDUSTRY REGULATIONS AND POLICIES

INFORMATION TECHNOLOGY ACT, 2000

The Information Technology Act, 2000 (the IT Act) was enacted with the purpose

of providing legal recognition to electronic transactions and facilitating electronic

filing of documents. The IT Act further provides or civil and criminal liability

including fines and imprisonment for various cyber crimes, including unauthorized

access to computer systems, unauthorized modification to the contents of computer

systems, damaging computer systems, the unauthorized disclosure of confidential

7/31/2019 MFS IPO Val (1)

19/30

information and computer fraud. The IT Act regulates Information Technology i.e. it

governs information storage, processing and communication. The Act provides

legal recognition of electronic records and electronic signatures, their use, retention,

attribution and security.Penalties are provided for cyber crimes which include

tampering with computer source document and electronicpublishing of obscene

information, in addition to provision of compensation in certain cases

TRADE MARKS ACT, 1999

The Indian law of trademarks is enshrined in the Trade Marks Act; The Trade Marks

Act seeks to provide for the registration of trademarks relating to goods and services

in India. A trade mark means a mark used in relation to goods for the purpose of

indicating a connection in the course of trade between the goods and the proprietor.

While registration of a trademark is not compulsory it offers better legal protection.

Any person can apply for registration of a trademark to the Trademark Registry under

whose jurisdiction the principal place of the business of the applicant in India falls.

The term of a trademark registration is for a period of ten years. The renewal is

possible for further period of 10 years each.There is no system as yet wherein a single

trademark application is sufficient to protect the trademark right

internationally. However, Paris convention to which India is a party provides certain

privileges to member countries in trademark registration. A party that files their first

trademark application in a member state of the Convention, such as India, can within

six months of that filing date file applications in other member countries claiming the

priority of the first application. If such a trademark is accepted for registration it will

be deemed to have registered from the same date on which the application is made in

the home country.

THE PATENTS ACT, 1970

The Patents Act, 1970 (Patents Act) is the primary legislation governing patent

protection in India. In additionto broadly requiring that an invention satisfy the

requirements of novelty, utility and non obviousness in order for

it to avail patent protection, the Patents Act further provides that patent protection

may not be granted to certainspecified types of inventions and materials even if they

satisfy the above criteria. The term of a patent granted under the Patents Act is for a

period of twenty years from the date of filing of application for the patent. The

7/31/2019 MFS IPO Val (1)

20/30

Patents Act deems that computer programs per se are not inventions and are

therefore, not entitled to patent protection. This position was diluted by The Patents

Amendment Ordinance, 2004, which included as patentable subject matter:

1. Technical applications of computer programs to industry; and

2. Combinations of computer programs with the hardware.

SPECIAL ECONOMIC ZONES SCHEME

The Government of India had announced a SEZ scheme in April, 2000 with a view to

provide an internationally competitive environment for exports. The objectives of

SEZs include making available goods and services free of taxes and duties supported

by integrated infrastructure for export production, expeditious and single window

approval mechanism and a package of incentives to attract foreign and domestic

investments for promoting export-led growth. The functioning of the SEZs is

governed by a three tier administrative set up. The Board of Approval is the apex

body and is headed by the Secretary, Department of Commerce. The Approval

Committee at the Zone level deals with approval of units in the SEZs and other

related issues. Each Zone is headed by a Development Commissioner, who is ex-

officio chairperson of the Approval Committee.

BENEFITS UNDER THE SEZ SCHEME

The Duty free import / domestic procurement of goods for Development, Operation

and Maintenance of SEZ units and 100% Income Tax exemption on export income

for SEZ units Section 10AA of Income Tax Act for first 5 years, 50% for next 5 years

thereafter and 50% of the ploughed back export profit for next 5 years. External

Commercial Borrowing by SEZ units up to US $ 500 million in a year without any

maturity restriction through recognized banking channels. Exemption from CentralSales Tax, Service Tax, Single window for central and state level approvals and

Exemption from State sales tax and other levies as extended by the respective State

Governments.

7/31/2019 MFS IPO Val (1)

21/30

POST IPO CONTROVERSY:

Cracking whip against seven firms for not complying with the disclosure norms in their IPO

prospectus, Sebi on Tuesday barred the companies, their directors, merchant bankers and

other related entities from participating in the securities market till further order.

The merchant bankers who have been prohibited from participating securities market, include

"PNB Investment Services, the book running lead manager of IPO of Taksheel Solutions and

Almondz Global Securities (PG Electroplast and Bhartiya Global Infomedia)". Their CEOs

too have been barred from participating in the capital market till further order. The market

regulator has asked them to deposit the proceeds from the IPOs in escrow bank accounts and

also call back the IPO proceeds to their cash credit accounts.

7/31/2019 MFS IPO Val (1)

22/30

VALUATION:

FCFF:

The Share is currently under priced by 40%. A buy decision will be apt for this

at present.

2007 2008 2009 2010 2011 Terminal

EBIT 28.21 8.64 2.94 16.19 8.1

NOPAT( EBIT*(1-TAX)) 19.747 6.048 2.058 11.333 5.67Add: Depreciation 0.07 0.06 0.32 0.31 0.14

19.817 6.108 2.378 11.643 5.81

Less: Working Capital

Changes 33.15 0.73 -9.51 -17.87 -6.23

-13.333 5.378 11.888 29.513 12.04

Less: CAPEX 54.17 -2.5 -6.46 4.92 -39.8

FCFF -67.503 7.878 18.348 24.593 51.84

PV Factor 0.892794 0.797082 0.71163 0.635339 0.567227

PV FCFF -60.2663 6.27941 13.05699 15.6249 29.40507 453.2525781

Sum PV FCFF 4.100075

PV Terminal 257.0973

Enterprise Value 261.1974

Value of Debt 4.402

Value of Equity 256.7954

Intrinsic Value 15.71

Market Price 11.15

%

change 0.408622

7/31/2019 MFS IPO Val (1)

23/30

Working Notes:

Rm 0.15 Assumed

Rf 0.082Market

Premium 0.068

Beta 0.83

Borrowings 8.59 3.73 3.87 3.02 2.8

Interest Paid 0.81 0.54 0.51 0.34 0.17

Debt Equity 0.09 0.04 0.05 0.05 0.22

Cost Of

Debt0.11

Cost Of

Equity0.12

WACC 0.12

Working Capital Changes:

Current

Assets 3.85 42.36 42.64 31.14 12.87 4.07

Current

Liabilities 0.67 6.03 5.58 3.59 3.19 0.62

Working

Capital 3.18 36.33 37.06 27.55 9.68 3.45

Changes 33.15 0.73 -9.51 -17.87 -6.23

CAPEX:

2006 2007 2008 2009 2010 2011

Total Assets 6.17 99.21 96.99 79.03 65.68 17.08

Current Assets 3.49 42.36 42.64 31.14 12.87 4.07

Fixed Assets 2.68 56.85 54.35 47.89 52.81 13.01

CAPEX 54.17 -2.5 -6.46 4.92 -39.8

7/31/2019 MFS IPO Val (1)

24/30

Technical Analysis

Simple Moving Average:

A SMA is created by calculating the average price of a stock over a certain amount of

bars/periods. So a 20 SMA on a 5 min intraday chart shows the average price for the

last 20 5 min bars.

One of the problems with SMA is that it is lagging the price. The EMA challenge this

problem by putting more weight on the recent bars price. The EMA then adapt faster

to the current rally or drop giving the trader a heads up.

At present, I will suggest to sell the stock as short term perspective since we can see that

shorter moving average is cutting is cutting the longer average from above and with that also

we can see a bearish trend.

7/31/2019 MFS IPO Val (1)

25/30

RSI Oscillator

Interpretation:

RSI measures momentum by measuring the stocks recent gains and losses by

forming this information into a number between 20-80.RSI is plotted between these

ranges where 80 is overbought level and 20 is oversold level.

When RSI

7/31/2019 MFS IPO Val (1)

26/30

Bollinger bands

Interpretation:

Bollinger bands are best used when the prices settle down and the range is moving

side wards and distinctively upwards or downwards.

After going through the above chart we can see that the stock price is closer to the lower band

which suggests that the stocks is reaching an oversold position, so the stock may rise in the

future.

7/31/2019 MFS IPO Val (1)

27/30

MACD

Interpretation:

MACD is a leading indicator and is calculated by subtracting the 26 EMA

with 9 day EMA average .

When the 12 day EMA is above the 9 day EMA we must BUY the shares and

vice versa

By going through the above chart we can see that Divergence line is cutting the 9 day average

line from below ensuring a bullish trend for the future.

As per the trends shown in the above charts, all the indicators are suggesting to buy the stock

as per the studies if we take a short term approach as an investor. The studies are showing

that the stock will revive in the future. When all the charts are showing positives for the

momentum trader. Although the stock has devalued considerably from its position which it

held around 6 months back and there hasnt been much volume trading in the stock but the

study done above suggests that the stock will be a good bet for the coming 2-4 weeks.

At Rs 11.85 on BSE

Shares of Taksheel Solutions settled at Rs11.85 on BSE, a discount of 73.77% over the

initial public offer price of Rs 150.

The stock debuted at Rs 157.40, a premium of 4.93% to the initial public offer (IPO) price.

The stock hit a high of Rs 185 and low of Rs 10.50. On BSE, 3.76 crore shares were traded

on the counter.

7/31/2019 MFS IPO Val (1)

28/30

7/31/2019 MFS IPO Val (1)

29/30

7/31/2019 MFS IPO Val (1)

30/30