Assume you are a private equity fund manager, and you are consider to

 

Assume you are a private equity fund manager, and you are consider to invest in Dell at current year, write a paper to analyze and evaluate the company.

Use the following materials and links as background and references. I also attached a sample note, which you need to use it as the template of this paper, and a case related to Dell.

   

TNT TECHNOLOGIES PRIVATE LIMITED

(TNT)

SAMPLE RECOMMENDATION NOTE

ALL INFORMATION IN THIS NOTE IS MADE UP –

FOR ILLUSTARTIVE PURPOSES ONLY

SINGAPORE

February 2018

   

TABLE OF CONTENTS

(1) Transaction Summary : 30

(2) Investment Thesis : 30

(3) Company Overview.. 34

(4) Business Plan : 47

(5) Financial Projections : 48

(6) Potential Risks : 49

(7) Valuation & Return Expectations : 50

   

I  Transaction Summary :

Sector : Technology (B2B) / Urban Development 

Fund’s Transaction Size : up to US$ 15 mn

Instrument : Equity Shares / CCPS

Valuation : $40 mn (pre-money)

Fund’s Equity Stake  : up to 29% 

Exit Timing : 54 months

Expected IRR : 35 % p.a

II  Investment Thesis :

(1) Growing Awareness & Demand GIS Solutions

The Geographic Information System (GIS) market is evolving from a distinct software market into a decision support technology. The map based visualization and real-time information exchange is transforming planning, research and development, deployment and monitoring. 

While a lot of spatial data has been collected, only recently workflow and information management systems are being developed that are able to link and process spatial and non-spatial data for decision support systems.

Government continues be the largest consumer of GIS, for a multitude of applications and e-governance initiatives. Private players in the field of telecom, infrastructure development and retail have also started taking advantage of this technology.

The demand for GIS solutions seems favourable :

(a)  … Provide reasons for the demand here. 

   

(2) TNT Positon of Strength on Cost & Technology Parameters

One of the biggest selling points for GIS Software as a Service (SaaS) is the potential to reduce IT support costs by outsourcing hardware and software maintenance and support to the SaaS provider. Moving GIS to the cloud is likely to prove more cost effective, flexible, and productive for organizations wishing to rapidly deliver new capabilities. Further, use of open source platforms is desirable as they are more likely to receive software support from multiple vendors.

While the GIS players have mainly used closed-ended platforms of companies like ESRI and Intergraph, that entail upfront high license costs, extensive hardware requirements, require software to be built on the platforms for the end-use requirements. Even then these products have been rigid to use due to the difficulty and limitations in the extent of customization.

TNT on the other hand has leveraged their founders’ extensive domain knowledge to create a proprietary technology platform, which is hosted on a cloud and customized for Asian use in the fields of property tax, water & sanitation, monitoring of structures like dams & bridges and survey of heritage sites. Other modules are being prepared. As these solutions don’t require any licensing cost and minimal hardware requirements, TNT offerings are 35-80% cheaper than the competitor offerings and can be deployed even in smaller areas where there are budget limitations.

The following is a snapshot of the bid details for the property tax assignment, where TNT got the contract :

Table 1 : Summary of Bid Details 

  

Item

Tender Quantity

Unit

Co. A

Co. B

Co. C

TNT

 

Technology

Autodesk

ESRI ArcGIS

ESRI ArcGIS

Proprietary

 

Survey of   Buildings

40,000

$ / Unit

180

538

275

91

 

Open Plot

8,000

$ / Unit

85

438

180

80

 

Software:   Computerization

1

$

500,000

145,000

800,000

500,000

 

AMC for Updates

48,000

$/ Unit

40

178

70

45

 

Web Application

1

$ / Unit

1,200,000

165,000

750,000

500,000

 

Total Bid Value

$

11,500,000

33,878,000

17,350,000

7,440,000

   

The interaction with the officers at the local municipality, indicates that the product is robust, easy to use, integrated with the workflow of the information management system and for the 31 areas where the work has been completed, there has been a detection of property tax violations that will increase property tax by 25%.

(3) Strong, Proven Capabilities :

(a)  Property Tax : In a short period of time, TNT has successfully demonstrated its product with deployment of property tax modules across select wards of municipal councils. These wards have seen improvement in property tax collections by ~40%.

For instance, in Corporation of City of Area A it was found that 20% of the buildings were not in the records, 60% were not paying commercial taxes, 15% were not paying house taxes and 65% were not paying signage taxes. This helped increase property tax by over $ 7 mn in just one ward.

(b)  Water & Sanitation : Institutions like Water Consultancy Services Limited (WCOS), and TEP University are using TNT’s solutions for conducting a thorough study of groundwater availability across seasons, survey and mapping of all major assets and pipelines of water supply & sewerage network and an interactive platform for viewing the project area with a decision support system for the civic officials.

Some of the assignments undertaken include :

(i) Ward C Municipal Corporation and Ward D Municipal Council in partnership with Advent

(ii) Water Department of Area F, and mapping for irrigation projects across City X and City Y with WCOS 

(iii) Sewerage & sanitation surveys across Areas D and E with TEP University

(c)  Monitoring of Civil Structures  : TNT is working with Trent, a global monitoring solutions provider with local presence in 35 countries. Trent provides IoT sensors and TNT provides the software for computation, visualization and decision support. They are working together on a project in Africa, and evaluating other prospects like … (Give examples of pipeline).

(d)  Heritage Buildings : TNT is working with AAIC to undertake the laser scanning and provide a web-based platform to visualize the data and implementation for the Capitol Complex.

As is evident from the above, leading domestic and international companies have chosen to work with TNT on various large and prestigious assignments covering diverse sectors. The Company has also built a strong pipeline of contracts aggregating $ 510 mn.

   

(4) Low Capital Intensity & Favorable Risk-Return Trade-off

The Company offers software solutions on a SaaS platform that requires capital only to build the product while the direct variable costs are minimal. This results in low capital intensity and generates high return on capital with scale up. This is evident from the fact that the Company has been profitable since inception.

The Company requires capital to develop next level product capabilities. This investment will put the Company in a position to scale up to over $ 300 mn of annual revenues on a sustainable basis. At this level of revenues, the Company will generate EBITDA margins of over 36% and return on capital employed of over 100%.

The current round of funding coupled with internal accrual generation over the next few years will also strengthen the balance sheet to bid for larger contracts. 

III Company Overview :

(1)  Background :  Founded in 2010, TNT provides services in the field of Geographic Information System (GIS) that include enterprise solutions, smart city solutions, municipal solutions, spatial data collection & application development and geospatial consultancy.

The Company is focusing on solutions in areas such as property tax, water supply & sanitation, environmental impact assessment, structural monitoring (dams, bridges, metro, heritage buildings etc), estate management, solar rooftop potential assessment, 3D mapping solutions, building plan approval and other location based data collection & monitoring services.

(2) Founders : The founders come with deep understanding of geospatial applications and the ongoing evolution of technology in a digitally connected world with influx of big data. The tie-ups with global players in the related fields and our primary interaction with various partners validates the same.

The profiles of the Founders are as follows : Here you could describe key management to build the idea that management is effective.

(a) Mr A…. 

(b) Mr B

   

(3) Shareholding Pattern :

Table 2 : Shareholding Pattern as on December 31, 2017

  

Name   of the Shareholder

Equity Shares

Preference Shares

% Holding (fully diluted)

 

A

20052

41.23

 

B

20052

41.23

 

C

10

2,038

4.00

 

D

10

19,999

4.86

 

ESOP Pool***

4,446

8.68

 

Total

***ESOP pool to be created

(4) Snapshot of the Sector :

The Geospatial Information System (GIS) has been globally available for a few decades, but is still a relatively new and burgeoning field. It is only recently with the advancement in technology and digital applications becoming mainstream that adoption of GIS based applications has started gaining traction. The industry is far from mature and the traditional information management systems are not built to leverage the value of spatial information inherent in their data .

There are varied form of spatial data collection technologies that include aerial photography and satellite imagery, specialized sensors and metering systems, human surveys or direct collection of customer information. Further, a great volume of data exists in map libraries and historical data sets and archives. This data needs to extracted and processed to transform it into a desired format that can be used in a GIS. The process is difficult and often prone to significant quantitative and qualitative errors.

Spatial information comes in a broad range of often-proprietary formats and is contained in a number of frequently incompatible data management systems. This is particularly the case in government organizations that have historically had specialized systems developed for dealing with information they are mandated to collect and maintain, which has created a plethora of data sets maintained in obsolete and incompatible specialized systems. This leads to significant needs for processing of data into a cohesive data set that coincides spatially and minimizes errors in conversions or systems integration.

The next level of engagement requires a great deal of communication, training and awareness generation on the benefits and applications of GIS in becoming an active decision support tool. This involves understanding the operations of the organization, their problem areas, customers profile and state of their information management system, and accordingly customization of the GIS system functionality and user interface.

   

An example of a GIS system can be allowing an urban local body to establish a set of criteria viz. property price, end-use, age of property, adequacy of public conveniences etc., that would then provide them a list of properties and their property tax in a given area including maps of locations, house photos, tax incidence and compliance, aiding their decision making.

 Table 3 : Overview of the GIS Sector

  

Tools

Aerial imagery, Electronic total   stations, GIS, GNSS, LiDAR/Laser Scanning, Radar, Satellite imagery,   UAVs/Drone

 

Application Areas

Assets and resource management, data   acquisition and visualization, information systems, monitoring, planning and   analysis, surveying and mapping

 

Benefits

Better precision and accuracy,   enhanced data safety, security and control, faster decision making, improved   cost efficiency, improved productivity, increased transparency and planning

 

Key Industries

Agriculture, Disaster Management,   Electricity, Forest, Environment and Climate Change, Infrastructure, Urban   Development, Water Resources

(5) State of GIS in Asia :

The outreach of geospatial technology in many countries has been dismal with city administrations for tax management and their day-to-day operations. Some of the key reasons have been due to piecemeal solutions offered by established geospatial technology players – either surveys or applications. Comprehensive solutions starting from data collection to data management to technology platform were not marketed well. Further, the administrations do not have dedicated IT teams or consultants or staff having technical understanding. Hence in the absence of a comprehensive solution, the data or applications remain largely unused.

Some of the key issues include :

(1) There is no national GIS or national DEM yet available in many countries.

(2) There is acute shortage of large scale geospatial data.

(3) The small-scale geospatial data are not up to date.

(4) There are no or very few national standards available for geospatial activities.

(5) It is common that several large and small infrastructural projects get delayed and lead to cost-escalation due to poor input of geospatial data and solutions.

(6) Lack of geospatial data and solutions imposes limitation on running successful disaster management operations.

(6) Company’s Service Offerings  :

TNT’a service offering include end-to-end GIS solutions covering different modes of data collection, data management and software that includes workflow management, GIS based queries and functions, visualization and a customer friendly user interface.

The Company has developed specialized technologies for spatial data collection (location based information) that includes use of mobile apps during survey, terrestrial/mobile/aerial LiDAR (light detection and ranging), unmanned aerial systems (drones / UAV), IoT (Internet of Things) sensors etc.

The geospatial data is processed in its proprietary technology platform built on open source with specialized object sets, compliant with the Open Geospatial Consortium (OGC) Standards. The technology platform enables processing of varied data formats in a spatially enabled manner.

The hyperlocal information system is equipped with workflow management, intelligent visualization and easy-to-use interface that makes it one of the most user friendly GIS systems available. It can be integrated into the Enterprise Resource Planning (ERP) modules, or used as a SaaS platform (Software as a Service), or used as a standalone product with dedicated servers.

The typical process workflow for a GIS solution is as follows :

Table 4 : Typical Process Workflow

  

Project Initiation

Requirement analysis / user profiling

 

Data Creation

Physical surveys, import from CAD   layouts, GPS based data collection, UAV/LiDAR surveys, listing of Sensor,   Sensor location mapping

 

Data Management

Database creation, linking with   non-spatial data and sensor data streams

 

GIS System

Creation of online Smart GIS   Management System, which is integrated with the ERP and enables business   analytics and customizable workflow 

   

(7) Positioning & Differentiation

The GIS space in Asia has many small and large players who focus on varied sectors and specialties. Some of the large players are …… The other small and mid-size players active in the field are ……

The players predominantly use close-ended platforms of global players like ESRI and Intergraph, build GIS solutions upon it for domestic customer requirement. As they have to rely on such platforms, the solutions are rigid, expensive and deployed only by large administrations and large sized companies.

TNT has developed its own cloud based platform that eliminates or simplifies many of the difficulties and bottlenecks faced in the service offerings of the global platforms. While its proprietary design hosted on the cloud enables it price its solutions 35-80% lower than competition.

Some of the key differentiating factors are as follows :

(a) Technology Platform : ESRI technology and Intergraph suite have been the most popular GIS products in Asia so far. However both are global companies and their local resellers just sell the enterprise licenses without offering customized solution and an end-to-end offering. As a result, many digitization initiatives have failed to take-off post survey of properties.

Existing product suite of ESRI, Intergraph, etc. require a server room and hardware, dedicated database server, administrator (DBA), customization team and continuous administration  engagement in development process. In each instance there is difficulty in customizing taxation rules. This results in high cost levels for implementing GIS solutions.

TNT’s proprietary technology built on open source platforms and hosted on the cloud is combined with mobile workflow for geospatial mapping and workflow for property tax data with automated linking of spatial and non-spatial data to buildings and premises. This enables TNT to provide floor-wise visualizations and offer pay-as-you-use or annual licensing models.

   

Table 5 : TNT vs ESRI/Intergraph technology platform

  

ESRI/Intergraph

TNT

 

Requires a   server license to be purchased which goes up to $ 5 mn

No server   license required

 

Expensive due   to extensive hardware, server room, dedicated database server, administrator   (DBA) and customization requirements

Cloud based   platform that eliminates majority of these costs, as result the cost drops by   35-80% over the peers

 

No mobile   integration for data capture

Globally, ESRI   data collector has been surpassed by young companies like Terrago, which   excel in mobile based data collection

TNT’s mobile   data collector works on a technology which is more modern than the technology   used by ESRI

Seamless mobile   integration, which helps in easy transfer of spatial and
  non-spatial elements to web server for automated processing

Mobile app   talks well with external GPS receivers through Bluetooth for improving   spatial accuracy of data collected. Compliant with standard DGPS hardware   from companies like Trent, Satlab, EOS, etc

 

Workflow needs   to be configured

Seamless,   customized workflow – already developed for property tax, sanitation

(b) Survey Capabilities : Proper data collection capturing both spatial and non-spatial elements is critical in developing an accurate, reliable GIS system. TNT has developed in-house survey capabilities with democratized tools for low-end GIS data collection using android phones, lasers and door-to-door data collection, as well as modern capabilities consisting of UAVs, Terrestrial LiDAR for building scanning and mobile LiDAR for street mapping. This helps collect accurate information at lower costs. Amongst the competitors, only MapGlobal has in-house survey capabilities, but it uses vehicle mounted street-mapper cameras with a focus on creating navigational solutions. All other companies outsource survey work.

   

(c) Competitive Landscape :

(i) TNT is focused on providing integrated and affordable GIS solutions, which can be offered even for small ticket assignments.

(ii) Other companies have a greater focus on navigational database creation. They work on the ESRI platform and have no focus on city administrations.

(iii) MapGlobal is a data company offering Address PoIs and applications built on them. They use the ESRI platform and have no focus on city administrations.

(iv) Company R is an IT systems company with large scale managed GIS services. They work on Geomedia platform and have a focus on large city administrations and Smart City programs. Property Tax is not a part of their key offerings.

(v) Other MIS systems such as KDMC etc : They focus on basic MIS workflow and clerical work, working on basic SQL based query systems. They focus on smaller ticket state mandates.

(8) Market Size & Customer Segments  :

The Company has identified City Administrations as one of the largest addressable segments that will also generate positive social footprint with assistance in tax compliance and urban development.

Government at all levels collect and manage information that has spatial components. Typically, this information is not maintained in a spatially enabled manner and is thereby not utilized efficiently or effectively in decision-making processes. All levels of government; local, state or district, can use GIS technology in virtually every department or agency. This is due to the fact that the topics of their attention are related to jurisdiction and government duties. These applications include natural resource management, land use planning, law enforcement in case of litigations, health services, insurance analysis, emergency planning and response.

   

The immediate areas where TNT has focused its attention in developing solutions, for both government and private entities, are as follows :

(a) Property Tax : Property Tax accounts for about 30-35% of a city administrations revenue. However, the collection efficiency in the 36 large cities stands is only 63%, in the range of $ ~45 bn as against revenue potential of $ 63-94 bn. Based on research findings, if the property tax collection efficiency is increased to 85%, there is a potential to increase property tax revenues to $ 12 bn.

Presently, the city administrations databases to generate property tax bills are predominantly outdated and do not capture all the properties. The attempts to carry out comprehensive survey for updating the records have fallen short, but the challenges can be addressed with use of technology. The processes for generation of demands and monitoring of property tax compliance is also not automated, leading to further shortfall in collection.

TNT offers a solution of surveying properties using mobile app and laser range finders, integrated with web enabled geo-visualization platform, MIS generation, run queries and analytics for decision making. The solution has a unique offering of floor-wise visualization with on-premise data and photographs. 

TNT has undertaken property tax projects in cities such as …., and successfully rolled out the GIS platforms which have increased the property tax revenues in these municipalities by over 40%.

The Company has identified an addressable market of 2,061 city administrations in Asia These consists of 95 mn properties, having a revenue potential of $ 20 bn from the property tax module.

(b) Water Supply & Sanitation : Water resource management is affected by multiple factors like population and economic growth, pipeline leakages, pollution, non-revenue water, climate change etc. The water works departments find it difficult to manage in the absence of timely insights on these factors.

There is increasing focus on creating sustainable solutions for water supply, irrigation and sanitation. The exercise includes thorough study of groundwater availability and quality across seasons and factors affecting them, as well as modelling for future scenarios. The study and analytics necessitates use of technology including geospatial study and visualization.

   

TNT has developed a Water Supply and Sanitation solution that is a combination of a GIS database, an operating system and an asset management module. It includes survey and mapping of all major assets and pipelines of water supply & sewerage network and an interactive platform for viewing the project area with a decision support system for the civic officials.

The Company has implemented its solution at …….

There are over 6,600 blocks in Asia with each having ~15 wards (administrative unit that manages the water resources). The company estimates an average contract value of $ 0.6 mn per ward translating to a market opportunity of $ ~6 bn.

(c) Heritage Buildings :  The Archaeological Society of Asia has been allotted a budget of $ 2 bn in 2017 for the conservation and preservation of cultural monuments in the country. In addition, UNESCO World Heritage supports the conservation of 50 cultural world heritage sites in Asia.

Heritage conservation is a niche field of architecture and engineering, requiring precise data on the existing status of the structure that includes cracks and imperfections. Laser scanning is a widely used technology in the developed countries to scan the structures in three dimensions using laser point cloud. It documents monuments in as-is where-is condition. Cracks and damages to the structures are captured exactly through 3D point clouds. This helps in preparing the conservation design and rehabilitation programs.

TNT leverages terrestrial laser scanning technology to scan heritage buildings and has a distinct advantage over the prevalent manual processes in Asia. The accurate reading help anticipate possible future damages to the structure. A pre-restoration and
post-restoration laser scanning exercise helps compare changes brought about by the restoration process. TNT then helps the customers visualize the laser point cloud data by providing an interface where they can view, measure and plan their activities. 3D point cloud capability is an important feature of this solution.

The company estimates an average contract value of $ 0.7 mn per monument translating to a market opportunity of $ 6 bn.

   

(d) Structural Monitoring of Dams, Bridges & Civil Works :  Monitoring the measurement of motion over time plays a vital role in project safety and management. For infrastructure, construction projects and natural structures, it’s important to understand what is moving, and by how much to better understand its structural performance and to predict its durability and remaining lifetime. Monitoring provides the information needed to support safe, economical and efficient operation of projects and structures.

TNT partners with Trent, a global monitoring solutions provider, to provide a comprehensive structural health monitoring system for dams and bridges. In a monitoring project, the use of geodetic, seismic, geotechnical and other sensors provides periodic observations of objects to detect physical changes such as unusual stress and strain, cracks and other deteriorations which occur due to factors such as loading, corrosion, fatigue, temperature and time. At user-specified intervals, the sensors take measurements to determine any changes in position, length or tilt. When the expansion/contraction properties of a geotechnically instrumented body are known, the additional use of prisms/GNSS to also monitor the position-related changes greatly enhances the quality control of the monitoring system.

(e) Other Segments : The Company has been active in providing solutions to other segments as well, such as :

(i) Estate Management.

(ii) Solar Rooftop potential assessment .

(iii) GIS solutions : assignments executed for Insurance, Highway Projects and Micro-Finance. 

(iv) Building Plan Approval (to be introduced in 2018).

(9) Alliances & Strategic Tie-ups

To implement GIS application and decision support systems in the city administrations  requires a degree of educating them with regards to what GIS is, how it can be utilized, and what benefit/role it can play. A major task lies in the area of demonstrating the utility and cost effectiveness of implementing well integrated GIS systems. Accordingly, a large part of the business development of the Company goes towards educating the city administrations on cost and benefits of GIS implementation.

While the Company is working with various city administrations, there still exists a wide spectrum of applications and use-cases both with government agencies and the private sector that the Company’s limited marketing team is not able to tap into. TNT has started working with multiple strategic partners for business development and joint bidding. Give some examples here.

IV Business Plan  : 

(1)  Capability Enhancement : With an eye to the expanding acTEPance and implementation of GIS solutions in Asia, requirement of customization and to leverage the evolving applications of technology, the Company has identified the following areas for capability enhancement over the next few years :

(a) Build local language support and translation APIs. 

(b) Improving architecture to enable handling of large size images (satellite / drone images), quicker loading and image processing.

(c) Drone imaging and mapping, 3D imaging. 

(d) Sensor integration / Internet of Things (IoT) capabilities.

(e) SAP integration. 

(f) Desktop Data Creation. 

(g) Integration of various modules (property tax, water & sanitation, estate management). 

(2) Expansion & Diversification : With the customized solutions for City adminstrations developed, the Company will focus on adding features to the solution to enable ongoing engagement, as well as look to leverage its GIS platform to build solutions for new segments both in the public and the private sector.

(a) Property Tax Module : enhance features like payment and collection module for mobile app – to enable updation of payments at the time of collection, automated changed detection module to identify new construction, more robust MIS, enhanced security features and support for ultra-high resolution imagery (drone-based imagery).

(b) PPP based Revenue Model for Property Tax : revenue earned to be a fixed percentage of increased revenues for ULB.

(c) Water Supply Systems : build a complete hydraulic model from source to destination (house connections), which will enable the ULB to monitor the system, ascertain water supply at critical junctures, limiting the leakages and plugging non-revenue water component. The application is intended to work with flow meters, quality sensors and devices to give real time data and visualization.

(d) Utilities Module : this will help analyse and manage assets, reduce non-revenue usage, enable door-to-door management, consumer indexing of utilities and provide analytics for improving operational efficiency.

   

(e) Building Plan Approval Module : SaaS solution for real estate developers to submit their building plans (designs and layouts) to the ULB or Estate Management Authority for approval. Once approved the ULB staff can monitor progress and integrate it with the Property-Tax module for property tax management.

(f) Estate Management Module : improved asset management practices – demarcating the lease areas, linking geographic features to lease information, assessment details and planning new lease areas.

V Financial Projections :  

The financial projections have been prepared based on the business plan and equity infusion taking place by December 2017.

Table 6 : Financial Projections 

  

($ mn)

2014

2015

2016

2017P

2018

2019

2020

 

Revenue

6.7

11.2

11.6

52.8

124.0

682.9

1,224.9

 

Direct Expenses

0.6

0.8

1.4

18.3

44.3

185.4

318.6

 

Sales & Marketing

0.0

0.0

0.0

4.6

32.4

97.4

158.1

 

G&A Expenses

4.6

7.7

7.9

18.9

80.3

169.8

304.5

 

EBITDA

1.4

2.7

2.2

10.9

-32.9

230.2

443.6

 

EBITDA (%)

22%

24%

19%

21%

-27%

34%

36%

 

Depreciation

0.3

0.5

0.5

3.1

14.0

24.9

45.0

 

EBIT

1.1

2.2

1.8

7.8

-47.0

205.3

398.6

 

Finance Expenses

0.1

0.1

0.1

0.2

0.4

2.4

4.3

 

PBT

1.0

2.1

1.7

7.6

-47.4

202.9

394.4

 

PAT

0.7

1.4

1.1

5.3

-47.4

142.2

276.3

 

PAT (%)

10%

13%

10%

10%

-38%

21%

23%

           

Networth

5.8

7.2

12.8

118.1

70.7

212.9

489.1

 

Debt

2.4

0.6

0.4

0.4

0.4

0.4

0.4

 

GFA

2.7

2.9

3.1

12.4

60.2

121.2

233.8

 

Net Working Capital

1.6

4.3

7.7

7.5

19.4

126.9

232.1

           

CF from Operations

3.7

-0.9

-1.8

8.6

-44.8

59.8

216.1

 

CF from Investments

-0.8

-0.2

-0.2

-9.3

-47.7

-61.1

-112.6

 

CF from Financing

1.5

-1.9

4.2

100.0

0.0

0.0

0.0

 

Free Cash Flow

4.3

-3.0

2.2

99.3

-92.6

-1.2

103.5

 

Cash Balance

5.2

2.3

4.4

103.7

11.1

9.9

113.5

 

 

ROCE (%)

27%

52%

24%

66%

-125%

155%

137%

 

ROE (%)

16%

22%

11%

8%

-50%

100%

79%

   

Some of the salient features :

(1) The Company has sustained focused on profitability and operational cash generation since inception.

(2) Survey and other direct expenses form about 30-35% of revenue. Accordingly, as the revenues grow, working capital requirements are not expected increase in the same proportion. 

(3) The Company needs to quickly strengthen its technology team to build solutions for the nascent but expanding business from City adminstrations and private enterprises, as well develop solutions for the Smart City Programs. The sales and marketing team needs to be built as well. This results in high operational expenditure and operational loss for a year.

(4) The Company already has built up an active pipeline to the tune of
$ 75 mn, which are at various stages of discussion. This provides good visibility for next two year revenue projections.

(5) Low capital intensity and highly scalable business, thereby providing high return on capital with expansion in subsequent years.

VI Potential Risks  : 

(1) Lack of management bandwidth : The Company is presently over-reliant on the Founders for marketing, as well as product evolution.

Mitigant : Post funding, the Company plans to build a strong management team. The Company currently has a 20 member team and an ESOP framework in place. It has identified key institutions to recruit fresh talent, advisors, consultants and talent who can accelerate the growth.

(2) High dependence of government tenders: Presently, 60-80% of the revenues are from property tax module that is awarded by City adminstrations through competitive tenders. There is an inherent risk of delays in award of contracts or losing the contracts to peers.

Mitigant : To de-risk, the Company has initiated strategic marketing tie-ups that will reduce its reliance on property tax module, as well as government tenders. While some of these tie-ups have yielded results but the Company needs to continue its marketing efforts and diversify its client base and user industries in order to mitigate the cashflow risk. 

   

(3) Competitive Intensity for Large Contracts : For large sized contracts such as Smart City Programs or from the City administrations of the large 36 cities, there is participation from all large cap companies with revenues of over $ 500 mn. The Company may likely face bottlenecks qualification criteria or skepticism as the Company is yet to execute any contract for a large city administration.

Mitigant : TNT has implemented their solution in diverse GIS applications for reputed partners, which provides validation to the Company technical ability and ability to execute large contracts. With this round of funding, the Company will also have the balance sheet to meet the financial criteria to bid for large contracts. 

VII Valuation & Return Expectations

(1)  SaaS Valuation Benchmarks :

TNT is a SaaS Company offering multidisciplinary geospatial solutions and specializes in using GIS and GPS information for solving problems of businesses across different sectors and civic bodies to make them smart in all respects. Multiple metrics from various sources have been evaluated to benchmark the entry valuation for investment in TNT.

Table 7 : Global SaaS Valuation Metrics 

  

Details

Revenue Multiple

Source

 

Multiple on annual   recurring revenue by Investors

6.8x

2013 study from Pacific Crest Advisors

 

Long term median   valuation multiple on LTM revenue (revenue growth rate of 28% and median   EBITDA margin of 5%)

5x

Capital IQ, Catalytic Investors, June 2016

 

Multiple in strategic   acquisitions 

8x

Redpoint, 2016

 

Valuation study by Software Equities   Group 

7.3x

Cultivation Capital,   February 2015

 

High-growth public companies

6-12x

Crunchbase, January 2016

 

The median multiples   of over 50 SaaS companies from CY2004 to CY2015

4-6x

Report- What We Know From A Decade Of SaaS,   June 2015

   

The Saas Index for public market multiples is graphically shown below : 

Chart 1 : EV/Revenue Multiples vs TTM Revenue Growth

Source : Software Equity Group, LLC

Chart  2  : EV/Revenue Multiples vs TTM EBITDA Margins

Source : Software Equity Group, LLC

The charts depicts that the highest growth SaaS companies received median of 7.4x EV/Revenue multiple and the most profitable SaaS companies posted a median of 6.1x EV/Revenue multiple, which was a 22% premium over the Index median of 5.0x .

   

(2) Listed Asian Companies with some exposure to GIS :

Listed companies are active players in the GIS space, but they are large IT companies with other segments forming a larger part of their revenues. While strictly not comparable, their multiples are provided as reference point :

Table 8 : Trailing 12 Month Valuation Multiples of Listed Companies 

  

Details

TTM EV/Sales

TTM EV/EBITDA

Last 3 year revenue growth rate (%)

 

Company P

9.8

29.3

-31%

 

Company Q

4.2

17.1

2%

 

Company R

1.3

3.5

30%

(3) Past Fundraising by TNT : The Company has raised two rounds of  funding in the past. Details of which are as follows :

Table 9  : TNT’s Past Fundraising 

  

Investor

Date

Amount

Stake

EV/Sales (x)

 

Tech Partner

Jul 2013

$ 2 mn

5.01%

8.5

 

Incubator A

May 2015

$ 2.5 mn

4.0%

5.4

(4) Proposed Transaction : The Fund  will invest up to $ 100 mn at a pre-money valuation of $ 245 mn for a 29% equity stake in the Company. Based on FY2017 expected revenues of $ 52 mn, the pre-money valuation comes to 4.7 times EV/Sales. 

Fund B is also contemplating an investment of up to
$ 30 mn in the Company. In the event Fund B commits to invest $ 30 mn, the investment amount committed by the Fund will reduce proportionately.

(5) Exit Planning :  The Company has successful deployed solutions across property tax, water & sanitation, estate management, heritage sites, insurance companies, Micro-finance industry and monitoring of large civil structures. With the current round of funding, the Company will have the balance sheet strength to bid for larger orders and take the growth path to the next level. This next phase of growth will also entail moving up the value chain with strong IOT capabilities and enhanced features of its multi-functional GIS platform.

   

Driven by adoption of modern technology, Govtech is emerging as a promising field across Asia and the world that can transform public governance to deliver the outcomes desired by its citizens. Accordingly, it became one of the major segments attracting venture capital with US$ 336 mn invested across 41 transactions in CY2016. The funding to this sector has registered a growth of 305% CAGR from CY2012 to CY2016

(a) Secondary / Strategic Sale : Over the next five years, we expect TNT to emerge as major player operating in the Govtech segment, with proprietary technology platforms and solutions that can be replicated across other disciplines in Asia and overseas. Apart from the venture/private equity investors, the Company will also be an attractive M&A target for large strategic players looking to acquire capabilities and presence in the segment

The increasing investor universe and the number of transactions the sector provides confidence that an exit can be consummated well within the Fund’s estimated holding period of 54 months 

(b) Drag Along with escrow mechanism : In the event an exit is not achieved by the Fund by way of a secondary sale or a strategic sale within 54 months of investment, the shareholder documentation will also include Drag Along rights for the Fund. In such an event, the Promoters agree to offer such stake from their holding as required to effect a sale. Further, to safeguard the Funds right, the shares held by the Promoters shall be kept in escrow

(6) Return Estimation : Considering that there are challenges associated with government contracts, such as prolonged sales cycle and payment related issues, the revenue achievement may get delayed. Given below are return estimations which factors various levels of delay and underachievement of revenues and EBITDA for a 54 month holding period :

Table 10 : Return Estimation

  

Revenue (` mn) à

750

600

500

 

EBITDA (` mn) à

195

144

100

 

EV/EBITDA   (x)

 

8

4.5x /   40%

3.3x /   30%

2.3x /   20%

 

10

5.6x /   47%

4.1x /   37%

2.9x /   27%

 

12

6.7x /   53%

4.9x /   42%

3.4x /   31%

   

(7) Other Key Investment Terms  :

(a)One Board Seat and one Observer Seat.

(b)Valuation Protection.

(c)Tag Along Rights.

(d)Liquidation Preference.

(e) Veto rights over all major decisions, capital structure, business plan, expansion, diversification, appointment / change of auditors, appointment / removal of key management etc.

VIII Recommendation: 

TNT provides the Fund an attractive opportunity to invest in the high growth Govtech sector with a player having strong domain expertise and proprietary technology that have been validated by both domestic and global players.

The current state of City administrations indicate absence of bespoke, usable solutions, while the geospatial consortium NGCC have brought to attention an acute shortage of expertise and skillsets in the GIS space. With such a backdrop, TNT will emerge as a strong GIS player offering full stack solutions. The Company is now looking to raise funds to build capabilities for the large contract space and operate alongside industry leaders.

The Fund should consider an investment of up to $ 15 mn in TNT Technologies Private Limited (TNT). In the event the Fund decides to pursue this opportunity, the following next steps are envisaged:

(1) Accounting and legal due diligence.

(2) Shareholder documentation.

   

Annexure – 1

Summary of the feedback calls with customers, partners and others

  

Organization

Contact Person

Feedback

 

G

Mr….

§  Working   jointly on IOT Platform and mapping assignments

§  Spoke   highly about TNT and the Founders’ domain expertise and customized solutions

§  Preferred   Partner : Jointly working on DRIP, Metro, Heritage and Irrigation Projects

 

E

Mr….

§ Has a Land ERP, takes TNT solutions for   Data Collection and Mapping Platform for projects in Africa

§ Spoke highly about the Founders’ domain   expertise

§ TNT’s solutions are agile and able to   drill down deep to provide customized solutions

§ TNT’s pricing 40-50% lower than ESRI,   while the product was of very high quality

 

F

Mr….

§ Proptery Tax module was implement in   select wards

§ User friendly and the ULB benefited

§ Will give TNT more wards to implement   GIS solutions post elections

§ Will recommend the Company to others

 

G

Mr….

§ Founders are prompt and forthcoming,   experienced and service oriented 

§ Working with TNT for Water Projects in Indonesia

 

H

Mr….

§ Delay in implementation because of   change in scope

§ Like the organisation and the founders

§ Data for 31 wards has come and has   detected non-compliance of 25% 

§ Very easy to use software, with site   photos and floor wise data that makes extremely useful to issue property tax   notices

 

I

Mr….

§ GovTech expert has validated the TNT’s   Product from technology standpoint. He used to run a GIS company prior to   joining ON

 

J

Mr….

§ Preferred vendor status

§ ACR continues to engage with TNT for all   its water projects.

   

Annexure – 2

Select List of Assignments Undertaken

   

S. No

Customer

Solution

Sector

Contract Value ($)

 

1

 

2

 

3

 

4

 

5

 

6

 

7

 

8

 

9

 

10

 

11

 

12

 

13

 

14

 

15

   

Annexure – 3

Order Pipeline 

  

Sr No

Customer

State / Geography

Scope

Work Brief

Estimated Contract Value*

 

1

2,000,000 

 

2

4,500,000 

 

3

3,500,000 

 

4

200,000 

 

5

3,000,000 

 

6

61,250,000 

 

7

4,000,000 

 

8

43,750,000 

 

9

3,400,000 

 

10

3,500,000 

 

11

1,750,000 

 

12

78,750,000 

 

13

12,500,000 

 

14

17,500,000 

  

Annexure – 4

GIS Industry Overview: Business Segments and Opportunities

Sample – Details of the Industry can be inserted in a 4-5 pg report here.