Capillary IPO: SaaS Giant To Use 21% Of Proceeds From Fresh Issue For Debt Repayment

Bengaluru and Singapore-based SaaS startup Capillary Technologies recently filed its draft red herring prospectus (DRHP) for its initial public offering (IPO). It plans to use about 21% of the proceeds from the fresh issue of the IPO for debt repayment.

The INR 850 Cr IPO includes a fresh issue of shares worth up to INR 200 Cr and an offer for sale by the parent company Capillary Technologies International PTE Ltd (CTIPL), the Singapore parent company of Capillary Technologies.

Capillary will receive only the proceeds for the fresh issue of shares as net proceeds. 

In its DRHP, the SaaS major has said that it intends to utilise nearly INR 42 Cr from the net proceeds towards repayment or prepayment of all or a part of certain outstanding borrowings availed by the startup, which accounts to about 21% of the net proceeds of INR 200 Cr.

As at November 30, 2021, Capillary had a total outstanding borrowing of INR 45.69 Cr. The startup owes nearly INR 25.22 Cr to RBL Bank, and another INR 20.47 Cr to Innoven Capital India.

“We believe that such repayment or prepayment will help reduce our outstanding indebtedness and debt servicing costs and enable utilisation of the internal accruals for further investment towards business growth and expansion,” it said.

In addition, Capillary said that the repayment would improve its ability to raise further resources in the future to fund potential business development opportunities.

The startup plans to utilise 36% or INR 72 Cr out of the net proceeds from fresh issue towards development of new product offerings and enhancing internally generated software. 

It would include utilisation of INR 23 Cr towards investment in cloud infrastructure and INR 34 Cr towards investment in development of new product offerings. It would also include another INR 15 Cr to be invested in hardware products, the DRHP said.

Further, the SaaS startup will utilise INR 30 Cr for strategic investments and acquisitions, said that draft prospectus.

In September 2021, Capillary had made a strategic investment pursuant to which it acquired Persuade Loyalty, LLC and Persuade Holdings, Inc and completed its first acquisition in the US market. It said that this acquisition gives its wide presence in the US market and access to its client base. 

“We plan to grow the business through products offered by Persuade and Capillary and network capabilities and expand its team across technology, sales and network,” it said.

It further said that, the rest of the net proceeds, would be deployed towards its general corporate purposes, as approved by our management, from time to time, subject to such utilisation for general corporate purposes not exceeding 25% of the net proceeds.

Capillary Technologies’ Recent Financials

IPO-bound Capillary is among the few profit making startups wanting to go public. The SaaS giant’s net profit increased 82 times to INR 16.94 Cr in FY21 from INR 20.6 Lakh in FY20, Capillary said in its DRHP. 

Total income of the startup, however, declined 26.5% to INR 123.15 Cr in FY21 from INR 167.59 Cr in FY20. Its revenue from operations fell 30.8% during the period under review at INR 114.9 Cr from INR 166.12 Cr in FY20.

The SaaS startup also recorded a decline in its expenses in FY21. It reported a total expenditure of INR 106.21 Cr in FY21, 36.5% lower than INR 167.39 Cr spent a year ago.

Its net profit for the first quarter (April-June) of FY22 stood at INR 2.52 Cr, while its total income was INR 33.7 Cr during the quarter.

The operational revenue in Q1FY22 stood at INR 33.16 Cr, it said in the DRHP filing.

The draft prospectus shows that its outstanding debt stands at nearly INR 83 Cr. Capillary intends to utilise around INR 42 Cr from the net proceeds to repay debt.

Capillary IPO | The INR 850 Cr Offer

The startup’s offer includes fresh issue of shares worth INR 200 Cr and an offer for sale of worth INR 650 Cr.

The parent company CTIPL will be the only selling shareholder during the IPO.

The development comes almost two months after Inc42 exclusively reported about Capillary Technologies’ plans of domestic IPO.

As per the DRHP, Capillary Technologies in consultation with BRLMs (Book Running Lead Manager) may consider a pre-IPO placement. 

The startup hasn’t unveiled its pre-IPO placement amount yet. However, it said if the pre-IPO placement is completed, the fresh issue will be reduced to the extent of pre-IPO placement. 

Though Capillary Technologies is backed by Warburg Pincus, Sequoia Capital, Avataar Capital, and Filter Capital among others, it is a fully owned subsidiary of CTIPL.

Founded in August 2008 by IIT Kharagpur alumni Aneesh Reddy and Krishna Mehra, Capillary Technologies is an omnichannel engagement and commerce solution startup. 

It claims to have a stronghold in India, Southeast Asia, MENA, China, among other countries. The startup offers 100+ loyalty programmes, and has over 120K stores and more than 500 Mn consumers. Over the years, it raised more than $100 Mn in funding.