Capillary Technologies' DRHP highlights rising competition, AI impact on business
Capillary Technologies
' draft red herring prospectus (DRHP) highlights increasing competition to acquire and retain enterprise customers amid increasing impact of
artificial intelligence
(AI), challenging macroeconomic conditions and changing market dynamics.
The Bengaluru-headquartered company filed its DRHP with the
Securities and Exchanges Board of India
on June 18, after it shelved its initial plans in 2021. It is looking to raise Rs 430 crore through its initial public offering this year.
The company reported revenue of Rs 598 crore for 2024-25, up 13.9% from Rs 525 crore in the previous financial year, according to data from the DRHP.
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Enterprise customer retention
Capillary Technologies lost three customers in 2022-23 and one each in 2023-24 and 2024-25. In the case of large enterprise customers, it is facing competition from firms that offer similar services targeting enterprise customers as they cut costs, restructure and develop products in-house.
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'While the afore-mentioned instances did not materially impact our financial condition, we cannot assure you that our business, financial condition and results of operations will not be adversely affected in the future due to such instances,' the DRHP said.
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The AI impact
In the DRHP, the company said that AI – which has been mentioned 81 times, compared to 18 times in the draft red herring prospectus filed in 2021 – is complex and rapidly evolving, and that it faces significant competition in the market and from other companies regarding such technologies.
'The adoption of Gen AI by various industries could lead to changes in our customers' operations. By adopting Gen AI, our customers may develop in-house capabilities which could impact the extent to which customers rely on us and reduce their need for our services,' it said.
In addition, the company said it is incorporating AI in its solutions and business operations. 'Our research and development of such technology remains ongoing. AI presents risks, challenges, and unintended consequences that could affect our and our customers' adoption and use of this technology,' it said.
R&D, acquisitions
To maintain its competitive edge, the company has been investing significantly in AI. It invested 21.50% of its revenue in 2024-25, lower than 28.04% in the previous fiscal in research, design and development. According to the DRHP, the company will invest Rs 151 crore in research and development. It will also focus on inorganic growth through acquisitions to enter new business areas as a strategic initiative, the company said, albeit without disclosing the expenditure earmarked for this.
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