Technology stocks are skyrocketing and Supernet Ltd plans to ride the wave.

A wholly owned subsidiary of Telecard Ltd, Supernet is selling 18.8 per cent (post-listing) shareholding on the stock exchange for at least Rs475 million later this month.

The modifier “at least” means that the funds generated through the listing can be as much as Rs665m depending on the level of enthusiasm among potential investors.

Institutional investors and high net worth individuals will take part in book building, which will be held on April 12-13 at the floor price of Rs22.50 apiece for 21.1m shares of Rs10 face value each.

The CEO of Supernet Ltd says the company’s listing offers investors a 60pc discount over the sector-wide average

Their bids can go up to Rs31.50 per share, or 40pc higher than the floor price, as per the regulatory limit.

Financials of the soon-to-be-listed company appear to be in good shape keeping in view the relatively low floor price. The company, which offers integrated communications infrastructure and cyber-security solutions, posted a net profit of Rs202.7m in 2020-21, up 9.8 times from a year ago. Its bottom line has grown at an annualised rate of more than 400pc since 2016-17.

But there’s a catch. The parent company of Supernet is hardly the poster boy for corporate success. It defaulted on its loan in the past and will use a part of listing proceeds to pay it off. Telecard returned to profitability in 2020-21 after four consecutive years of net losses.

Speaking to Dawn, Supernet Ltd CEO Jamal Nasir Khan said the financial problems of Telecard shouldn’t be confused with management failures. “All IT companies that dealt in the CDMA technology went into crisis,” he said while referring to the Code Division Multiple Access or CDMA technology, which is different from the Global System for Mobiles or GSM, a more popular radio network used by wireless carriers.

“It was a genuine technology failure in which management played no part. It began in the early 2000s and ended around 2014. But its liabilities remained parked on our books,” he said, noting that Telecard wasn’t the only IT firm that suffered. “PTCL also took a big hit, as did Wateen and WorldCall. But fortunately, Telecard invested in Supernet that’s now grown to be a lot bigger than the parent company itself,” he said.

The contribution of Supernet to the consolidated revenues of Telecard has been in the range of 60pc to 70pc. “We’re now 100pc bigger than our parent company in terms of revenue. Going by our forecast for the coming years, we’re hoping to grow a lot bigger than Telecard,” he added.

Transaction structure

Supernet is going to be the first IT Company to list on the Growth Enterprise Market (GEM) counter, which is a trading platform within the Pakistan Stock Exchange dedicated to growing companies that are smaller and riskier than the ones listed on its main board.

Of the 18.81pc post-listing stake on offer, 10.89pc represents fresh equity that the company will use for the purchase of fixed assets, investment in subsidiaries and working capital. The remaining post-listing shareholding (7.92pc) constitutes the offer-for-sale portion of the transaction. The sponsor (Telecard) will receive proceeds for diluting its own stake in the company from 100pc to 81.2pc post-listing.

As a result, the sponsor will generate about Rs200m for selling part of its shareholding at the floor price while fresh equity will amount to Rs275m. The sponsor will use the money to make a “single bullet payment” of Rs110.4m to the holders of its defaulted term finance certificate.

Mr Khan said the floor price of Rs22.50 translates into a price-to-earnings multiple of 11.3 versus the industry average of 21.5 based on the rates prevailing at the close of Sept 30, 2021. This provides potential investors with a discount of 60pc over the industry average, he said.

“The pricing is very attractive. Our beyond-connectivity initiatives have started delivering tremendous results in the last three years. I’m hopeful this growth will continue in the coming years,” he said.

Published in Dawn, The Business and Finance Weekly, April 4th, 2022