Tracxn Technologies

Business Overview (private market database platform) -

1. Founded in 2013, Tracxn Technologies is data platform for private companies. It currently provides coverage for 20 lakh company profiles (vs ~10 lakh as on FY20).
2. Its total customer base as on date stands at 1190 customer accounts, with 3 users per account (3400 users). Average pricing per account comes at Rs 6-7 lakh (for 3 users). Of ~Rs 80 crore of ARR, ~70% comes from international clients and ~30% from Indian clients.
3. Overall customer accounts have grown at ~23% CAGR over FY20-23, from 640 accounts in FY20 to 1190 today. At the same time, Tracxn has been able to take ~8-10% price hikes pa over this period, resulting in revenue CAGR of 30%. However, due to slowdown in private markets, customer account growth has slowed in recent quarters (~2-2.5% QoQ increase).
4. Who would be a typical customer? Key customers would be private equity investors, investment bankers, government agencies 7 corporates. IB & PE investors account for ~55-60% of the customer count. As per a Pitchbook report, there are ~10k active VC investors globally, 5x of what it was a decade ago!
5. As per channel checks (ex-employee), (1) Quality of report & data accuracy of global player like Pitch Book is far better than Tracxn, however Tracxn’s subscription cost is far lower (cost advantage), (2) Tracxn has an edge in terms of profiling on Indian companies (data depth), hence even the global PE/VC firms have a subscription along with others like PitchBook, CrunchBase).
6. They operate with a team of ~800 people (450 data analyst, 220 sales & marketing, 80 product & tech)

Positives (growth in PE/VC firms, low cost, op leverage possibility)–

1. Growth expectations. Over the medium term, growth drivers are growth in PE/VC firms globally & in India.
2. Low cost advantage. Being based out of India, Tracxn has the advantage of low-cost employee. Despite quality of Pitchbook reports considered to be superior to Tracxn, Tracxn is far more economical (Tracxn subscription cost is 60-65% lower than Pitchbook).
3. Supposed to showcase operating leverage. Once a company is profiled, then the software uses web-crawling across a wide range of online data to update. Incremental human effort is limited to verifying the broad-level accuracy. Hence, the business model should yield operating leverage as more customers use the existing data.

Risks (Competition, Growth risks, weak S&M in past) –

1. Quality & detail of report of Pitch Book will be higher than Tracxn in global context.
2. FY18-22 they showed meaningful op. leverage as 75% of incremental revenue flowed to EBDITA. However, over the 9MFY23 as revenue growth has started to plateau (also impacted by slowdown in pvt market), op leverage has been much lesser (30% margin on incremental revenue).
3. Sales & Marketing aggressiveness was missing till now, but they are catching up by hiring more salespeople. Mainly use online channels including emails, social media, and search engine optimization.

Management Overview & Forensics (Good corporate governance, growth hunger yet to be tested) –

1. Founded by Ex-PE employees – Neha Singh (ex-Sequoia) and Abhishek Goyal (ex-Accel), backed by Flipkart Founders, Mr. Ratan Tata, etc.
2. Overall Corporate Governance is good.There is room for improving overall employee retention, as per an ex-employee attrition used to be higher than industry average.
3. Promoter Group Holding 35%, Institutions 30%, Public 35%

Valuations have started factoring in near term slowdown, medium term risk reward now more balanced

1. At the current scale, business is Rs 80 crore ARR, largely breaking even at current scale.
2. Ignoring the near term growth slowdown, fair case would be to build 25% revenue growth (mix of price hikes & account growth) over FY23-25, yielding Rs 140 crore revenue. Assuming 10% cost inflation, it would imply 60% op margin on incremental sales, yielding FY25 EBIDTA of Rs 40 crore, Rs 30 crore PAT.
3. At Rs 600 crore Enterprise Value (CMP Rs 66, Cash on Books Rs 60 cr), it would imply 15x FY25 EV/EBIDTA or 20x FY25 PE (reasonable for high op leverage which future growth will be expected to bring in).
4. Fair value for Tracxn depends a lot on how the execute on (1) Growth in overall revenue, (2) Extent of operating leverage. There could be near term pain given slowdown in private market, which is partially built in prices.
5. Pitchbook in FY16 had revenue of 30mn$, when it was acquired by Morningstar for 225mn$ (7.5x P/Sales). Tracxn today trades at 7.5x EV/Sales.

Model for working (updated on 3QFY23)-
Tracxn Final.xlsx (22.1 KB)

Disclosure - Invested, will look to add more if revenue growth picks up

Initiating the thread for getting feedback & views on how to think of this business. Thanks.

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