The IPO of C.E. Info Systems Limited (MapmyIndia), which opened on December 9, is receiving good interest from investors, and at the time of writing this, it was subscribed 2.2 times. The issue size of around ₹1,039.61 crore (price band of ₹1,000-1,033 a share) is entirely an offer for sale and the MapmyIndia IPO subscription window closes on December 13.

The promoter family/group and early investors in the company – the US-based Qualcomm and Japan-based Zenrin are selling 18.9 per cent of the outstanding shares. The market cap of the company at the upper end of the issue price will be around ₹5,500 crore. The promoter stake, which is currently at 61.71 per cent, will be at 53.73 per cent post IPO.

MapmyIndia has many positives – a pioneer in its space in India with successful execution track record over the last two decades, at the cusp of innovation and digital trends that will speed up demand for its offerings, and a strong balance sheet with no requirements for external funding to fund growth initiatives.

However, its asking price of 36 times revenue, EV/EBITDA of around 94 times and PE of 92 times (both FY21) are stretched, offering very little margin of safety for market risks that may play out in the future after factoring for the opportunity its business offers. International companies in similar space with high growth opportunities are trading at much cheaper valuations.

Also read: MapmyIndia IPO opens today; raises ₹312 cr from anchor investors

Also, if one were to look at MapmyIndia’s core operating revenue/profits alone (excluding other income), its FY21 PE (assuming 25 per cent tax rate) is around 180 times. These levels indicate that the growth prospects are factored in. Hence, long-term investors need not apply now and can look for better entry points in the future.

MapmyIndia business

MapmyIndia is a data and technology products and platforms company, offering proprietary digital maps-as-a-service (MaaS), software-as-a-service (SaaS), and platform-as-a-service (PaaS). It is India’s leading provider of digital maps, geospatial software and location based IoT technologies (Internet of Things).

It provides products, platforms, application programming interfaces (APIs) and solutions across a range of digital map data, software and IoT. Its digital maps are comprehensive covering 6.29 million kilometres representing 98.5 per cent of India’s road network, and provide location, navigation data across most of India.

While the company has started to build and release digital maps for countries outside India, currently its business and offerings are predominantly India focussed.

MapmyIndia derives revenue from two business segments – Consumer tech and enterprise digital transformation (C&E) and two automotive and mobility tech (A&M). C&E which accounted for 48 per cent of FY21 revenue comprises offering its suite of digital maps and solutions in the areas of location intelligence, geospatial analytics to companies across verticals such as BFSI, Telecom, FMCG, government, etc.

Also read: How MapmyIndia is charting the metaverse territory

Under the A&M segment, it caters to automotive OEMs (four wheelers, two-wheelers and commercial vehicles), as well as corporations involved in transportation, mobility and logistics. Many of the leading auto OEMs in the country are its customers.

It’s revenue model is based on charging customers fees per period on a per vehicle or per assets, or per transaction, per use case or per user basis, as applicable. Overall based on this recurring model, the subscription fees, royalty and annuity payments together contributed over 90 per cent of FY21 operating revenue.

According to Frost and Sullivan report in the RHP, the total Indian addressable market of digital maps and location-based intelligence services is expected to grow at a CAGR of 15.5 per cent in the period 2019 to 2025, to reach a size of $7.74 billion. MapmyIndia is well-positioned and levered to tap this opportunity.

Current use case prospects for its offering are strong, given the accelerating digitisation trends driving greater need for personal and mobile navigational devices in transportation – personal mobility, e-commerce delivery, logistics, etc.

It also finds strong use case in areas like analytics based on data gathered via digital maps – traffic movements, location intelligence (for example: details of the area mapped out like type of buildings, distribution of retail stores). New use cases can come in the future from development and wider use of drones and autonomous vehicles.

Peers for the company are primarily international players such as Alphabet (Google Maps), TomTom, Here Technologies (formerly part of Nokia and before that a public-listed company known as Navteq) and Trimble. Competition from some of them will be one aspect to watch out for, given the formidable size of some of its competitors.

Also read: IPOs of MapmyIndia, Data Patterns, VLCC, 7 others get SEBI approval

However, what may work to some extent to MapmyIndia’s advantage is current the government regulations restricting foreign companies’ ability for most accurate, high resolution mapping. According to the company, this feature is important to create accurate maps for advanced driver assistance systems and 3-dimensional maps.

MapmyIndia IPO financials, valuation

MapmyIndia revenue from operations grew 3 per cent y-o-y in FY21 to ₹152.46 crore. It reported PAT of ₹59.4 crore, up 156 per cent y-o-y. The relatively higher boost to PAT versus revenue was driven by better other income, reduction in employee costs and other expenses.

For 1H FY22, it has reported revenue of ₹100 crore and PAT of 46.76 crore – up 81 per cent and 161 per cent, respectively. The growth rates are partially optically boosted by base effect, given the hit to auto sector (key segment for company) in 1H FY21. The FY19 to FY21 revenue CAGR is 6 per cent.

Given significant other income component in company’s PAT, the EBITDA is a better metric to assess the profitability of the company. The company reported EBITDA of ₹54.32 crore in FY21 and ₹46.12 crore in 1H FY22, with a y-o-y growth of 46 and 220 per cent respectively. The EBITDA margin for FY21 was at 35 per cent and at 46 per cent for 1H FY22.

While PE is 92 times, adjusted for other income and assuming tax rate of 25 per cent, the PE would be around 180 times.

These multiples are pricey even when considering the secular growth prospects for the company and also factoring the significant scaling up in its order book (up 72 per cent in FY21) which lends confidence on revenue visibility.

Also read: TomTom sees huge opportunity from India: Board member

For example, international peer Tom Tom, while still loss making, trades at around 2 times CY20 revenue. The US-listed company Trimble, which has some businesses similar to MapmyIndia, trades at around 6.9 times and at PE of 29 times.

Here Technologies, which was acquired by auto consortium of Audi, BMW and Daimer from Nokia in 2015, was acquired at around 3 times revenue. Thus, both on absolute basis and relative basis, the valuation is stretched for MapmyIndia IPO.

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