Pune based IT security and solutions provider, Quick Heal is set to enter the capital markets with its maiden initial public offer (IPO). Company’s products have market share of over 30 per cent in the retail segment in India as per its claims. Quick Heal's customers include home users, small offices and home offices, SMBs, enterprises, educational institutions, as well as government agencies and departments. The IPO will open on February 8 and the same will close on February 10. The price band at which the company is offering its shares is Rs 311-321 and it aims to raise Rs 451 crore at upper price band by issuing 1.41 crore equity share of Rs 10 each (fresh issue for Rs 250 crore + offer for sale of Rs 201 crore).
Utilisation of IPO Funds: Quick Heal intends to use the IPO proceeds primarily for advertisement and sales promotion activities and increase their spending on research and development of new products and services, as the success of the organisation mainly depends upon innovative products and solutions. Part of the proceeds would also be used for general corporate purpose, as the management claimed but it did not share any further information or break-up of expenses to be made once funds are raised.
Quick Heal provides digital security solutions that include antivirus software, firewalls, anti-spyware and data protection to name a few. The company also offers cloud-based security solutions ranging from mobile to desktop, and from gateway to servers. All the security solutions are indigenously developed in India. Quick Heal's antivirus range of products include: Quick Heal Internet Security, Quick Heal Total Security, Quick Heal Total Security for Mac, Quick Heal Mobile Security for Android etc. In the enterprise products category, it includes Quick Heal Endpoint Security that provides management and control of virus protection on networks and caters to both SME and Corporate markets. Currently the enterprise business contributes a little towards Quick Heal revenues. Nevertheless, the company has been pushing aggressively towards the lucrative Small & Medium Business (SMBs) segment by offering security solutions. According to the management, SMBs would contribute significantly towards revenue generation in the coming five years. The company has recently entered into a preliminary term sheet to invest up to Rs 6 crore in a firm that is developing home automation technology.
On financial front, on a consolidated basis the company has posted turnover Rs 294.33 crore in FY15 with a CAGR of 22 per cent in last five years. Quick Heal derived more than 97 per cent of its revenues from the domestic markets and less than 3 per cent from overseas operations. Operating income was reported at Rs 91.8 crore in FY15 with a CAGR of 13.07 per cent for a five-year period. For the five-year period ending FY15, profits augmented by CAGR of 9 per cent. Over last three years, operating profit and bottom-line has shown declining trend. Quick Heal remains a debt free firm. For first half of FY16 it has reported net profit of Rs 24.20 crore on a turnover of Rs 152.3 crore. Operating profit was reported at Rs 48.1 crore with a margin of 32 per cent.
Coming to the valuation, at the higher price band the company is available at price to earnings ratio of 46x as we annualised H1FY16 earning of Rs 3.46 per share on post issue fully diluted equity. When compared on EV/EBIDTA basis the issue will be available at 19.65x and market cap to sales comes at 7.4x. As there are no comparable peers listed as we cannot compare valuation of company. Nonetheless, the IPO, we believe is aggressively priced and may not give the listing gains, hence only long term investor with time horizon of more than one year should invest as the new products will start contributing to the company’s earnings in a meaningful way.