Indian Telephone Industries Ltd (ITI) IPO Review: Should You Invest?

ITI Limited IPO, plans to raise about Rs1400 cr, through the issue of 181,800,000 equity shares. ITI has allocated shares for QIB quota (75%), HNI quota (15%) and Retail quota (10%).

The company has reserved up to 18 lakh shares through an additional issue for its employees. The company has fixed price band at a discount of 20z5 from Wednesday’s closing price.

The President of India, acting through the Department of Telecommunications, Ministry of Communications, Government of India is the promoter of the company. Karvy Computershare Private Limited is the registrar for this FPO. The FPO will underpin the company to meet Sebi’s requirement of minimum 25% public shareholding.

ITI Limited

The company is a Bengaluru based public sector company that operate under the department of telecommunications.

It has customers from diverse industries including defence, banks, telecommunications, financial institutions, information technology, and solar energy.

Some of the famous customers are: Public Sector Units (PSUs) such as Bharat Broadband Network Limited (BBNL), Energy Efficiency Services Limited (EESL), Ministry of Rural Development (MORD), and Bharat Sanchar Nigam Limited (BSNL).

The company also works on government projects such as ASCON, BharatNet, Smart Energy Meters, and E-Governance Projects.

The company’s product portfolio includes optical and data network products, defence security encryption products, passive infrastructure products, multi-capacity encryption units, set-top boxes, smart energy meters, smart cards, and mini personal computers. Apart from this, the company also offers operation and maintenance services.

As on 31.12.19, the company’s order book is of Rs. 11051 cr. Apart from this, ITI is selected as the lowest bidder (L-1) by the Ministry of Defence on the ASCON Phase IV Project. Various plans under these projects are projected to be in the range of Rs. 7700 cr, which means that the company is likely to have a healthy order book of about Rs. 20000 cr.

Investment Risks

• ITI has high revenue dependency over limited number of PSUs like BSNL, MTNL and EESL.
• The company has outstanding litigation proceeding.

ITI IPO Details

The net proceeds will be used for Working Capital Requirements of Rs.642.48 cr, repayment of loans of Rs. 607.29 cr.

The company has about Rs 936 crore of working capital loan from the bank consortium, in which SBI is the lead bank, and then around Rs 300 crore loan is there from the Government of India and Department of telecommunication.

• Issue Open: January 24, 2020 – January 28, 2020
• Issue Type: Book Built Issue FPO
• Issue Price: Rs 72-Rs 77 Per Equity Share
• Issue Size: 181,800,000 Eq Shares of ₹10 for the total of ₹1,399.86 Cr
• Fresh Issue: 180,000,000 Eq Shares of ₹10 for the total up to ₹[.] Cr
• Minimum Order Quantity: 150 Shares
• Listing At: NSE, BSE
• Listing Date: On or Before February 5, 2020
• Pre-Issue Holding of the Promoters:89.97%

Should you Invest?

The company is looking to diversify its products and services like it  to start manufacturing Optical Fiber Cables, smart energy project etc. the company also plans to modernize its infrastructure and technology and startups to support Make in India and Digital India initiatives of the government.

For the first half of FY20, the company has delivered a loss of Rs. – (54.40) cr. on a turnover of Rs. 603.40 cr. As per the management, first half is always a lean period for the company’s performance.

For Q3 of FY20 ITI has reported a net profit of Rs. 168.25 cr. on a turnover of Rs. 827.95. If we annualize FY20 earnings and attribute it on fully diluted equity post issue, then asking price is at negative P/E as it has posted a loss for H1 of FY20. However, the Q3 performance indicates much better Q4 for FY20.

The long term investors may “subscribe” to ITI Limited IPO.