TAKSHEEL SOLUTIONS

Hyderabad-based Taksheel Solutions is raising funds from the primary equity market to set up development centres and to acquire companies in its domains. Taksheel is mainly focussed on wealth management. IT products and solutions business also forms a small part of its operations. After the IPO, the promoter group's stake will fall to 47.4% from 63.3%. Taksheel is betting on the possibility of a boom in the global wealth management industry in the current decade. But, the going will not be easy for the company, given its small size and single-market dependence. Moreover, against the backdrop of growing uncertainties about the US economy, Taksheel's IPO appears to be a risky affair.

BUSINESS

Taksheel offers IT products and solutions to finance and telecom sectors. It provides solutions in areas of wealth management, data warehousing and business intelligence. The US is its single-biggest market. The company plans to expand across the Middle East and Asia Pacific.

The company has 70 employees servicing 16 clients. Its typical contract size is $1 million-$4 million. Wealth management business contributes over 50% to the company's total revenue. Rising number of retired people in the US and Europe is likely to increase the need for financial services to manage retirement funds and matters related to wealth transfer.

FINANCIALS

The company's financial performance has been erratic over the years. Its revenue increased nearly three times in FY11 to 147.3 crore due to a strong order flow. It added five clients during the year. This also helped net profit to catapult to 27.4 crore. Secured loans, which mainly consist of working capital loans, grew twoand-half times to 8.1 crore in FY11.

CONCERNS AND VALUATIONS

The company's robust growth in FY11 was on account of sharp client traction. It is difficult to ascertain whether the company will be able to retain momentum in the weakening economic scenario in the West. Dependence on a single market may pose challenges in such a scenario. Taksheel's financial performance also doesn't inspire much confidence. Its operating cashflow has swung wildly in the past five years. In addition, though its debtor days were at three-year low of 90 days, these may shoot up again if its clients face difficulties to make payments on time due to slowing economy.

At the higher end of the price band, Taksheel demands price-earnings ratio of 12, considering post-IPO equity. This appears to be expensive given that other small-size IT companies trade at a P/E of 3-5. The IPO looks risky considering these concerns and its steep valuations.