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Analysis New Delhi based Moving Pictures Company (I) Ltd. (MPCL henceforth) is one of the oldest TV software producers in the country and was promoted by Mr. Ramesh Sharma and Mrs. Uma Gajapati Raju. The company has been widely known for weekly current affairs program India This Week on DD. It is also the main force behind the famous morning show Subah Savere, which is produced by TVAM (I) Pvt. Ltd., a subsidiary of MPCL. The company is raising Rs. 100 Mn at Rs. 40 to fund the setting up production and animation studios and to invest in feature length films. The company is making major forays in entertainment and animation software production. But this is not area in which the company has traditional stronghold. The company has been known to make informative documentaries and with independent players like Cinevista and Balaji Telefilms firmly entrenched in the popular entertainment software development, the prospect of the company in this arena does not appear very promising. The company is too dependent on DD for airing of its programs. This means a higher business risk. Another fact to mention here is that most of the past and present programs of the company are aired on commissioned basis in which the copyright rests with the channel and not with the producer. Looking at the market for informative and documentary programs produced by independent players, the demand has been coming down as many new news channels have come in existence. Further, most of the international channels have also increased India specific content. This has worked as double whammy for players like MPCL and they have to content with the good old DD, which is slowly losing out market to satellite channels, even in rural areas. Perhaps this has been the basic reason for the company to enter in popular entertainment on one hand and animation business on another. However, as mentioned above, in lack of expertise in these businesses, how does the company fares is a matter of speculation. The income has jumped rather extraordinarily from year 1999-2000 because of high jump in Free Commercial Time sales. The income for current year stands at Rs. 44.3 Mn for first seven months. The PAT stands at Rs. 8.69 Mn for the same period. EPS (annualized) of the company on inflated equity base stands at Rs. 1.83. On an offer price of Rs. 40, the scrip is thus available at a PE of just under 22. The issue is a highly risky bet.
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Analysis Bangalore based Datum Technologys (I) Ltd. has entered the market with 32.5 Mn issue at Rs. 10 for cash at par. The company is raising the money to finance the infrastructure development, business expansion and to set up offices in US besides financing long term working capital. The company presently offers enterprise wide solutions in various fields ranging from travel and transportation on one hand and educational institutions on other. In consultancy, it offers strategy formulation and implementation services to corporates. Now, looking at the business portfolio, though the growth is quite respectable in E-commerce and ASP services arena, that in ERP has taken a beating with the emergence of web as a business enablement mode. Further, the domains in which the company is providing services, the market demand is not very high and also the margin is not lucrative in domains like education and travelling. However, business in manufacturing, banking and insurance is high but the level of competition is rather stiff in these trades and considering the fact that the brand image of the company is not very high, the revenues from these businesses look suspect. Coming to the project and asset allocations, lions share in the project is being cornered by the expenditure on setting up US offices and purchasing land to set up office space. The actual expenditure on productive assets is quite low. This creates doubts about the return generation on the amount raised in short to mid term. The project has the backing of Vijaya Bank, which has sanctioned a term loan of Rs. 14 Mn. and it is one of the factors that go in favor of the issue. As regards financials of the company, income of the company has grown enormously during first six months of current fiscal and the total income grew by around 100% in this span compared to total income in the full year last fiscal. This has primarily been caused by other incomes of Rs. 3.26 Mn, which is non-recurring in nature and software exports of Rs. 3.8 Mn. The income from domestic software sales grew by 52.5%. The company has also scored quite well on profitability front with NPM at 27%, which is rather high for a startup. The year-end EPS of the company as per projection comes to Rs. 0.59. On an offer price of Rs. 10, this translates in a discounting of just under 17. This is not prohibitive pricing. However, the more crucial factors to keep a tab on are the business profile and the competitive position. The company is not very focussed in business portfolio and also the growth in ERP business is coming down. However, the same in ASP and E-commerce is quite high and this might chip in to check the fall on ERP business. In totality, the business structure is quite risky and as such, only high risk investors should contemplate buying in the issue.
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Analysis Andhra based IKF Software.Com Ltd has hit the market with Rs. 40 Mn issue at Rs. 10 each for cash at par. The company is raising the money to finance expansion of business and to invest in the proposed US subsidiary besides financing long term working capital. However, IPO bug seems to have caught the company a little earlier than usual and the within one year of inception, the company has hit the equity market. The company has been set up, in Feb, 2000, and a business profile is yet to emerge for the company. The commercial operation has begun only in Sept, 2000. However looking at the projects on hand, the business appears to be rather low on value chain. The promoters of the company are well-qualified professionals. Mr. Ramachandra Galla has also been the promoter of Amara Raja Batteries, a success story of nineties. However, the group has diversified interest in terms of other ventures and it will be rather tough on their part to manage the entire business portfolio. Another point to consider here is that none of the other ventures is such which can offer a business synergy to IKF Software.As far as the future outlook of business is concerned, we need to take into consideration three factors, namely, operational strength, market growth and level of competition. On operational capability, IKF scores poorly. With even the basic business structure not yet established it is hard to visualize the company establish itself in the export market where the quality of services and the image play defining roles. The market growth is indeed of high order and with mobile communications coming of age, the demand for wireless technology services is expected to grow fast, at least for next half a decade or so. The competition on other hand is very intense in the wireless technology and worldover, the domain is dominated by large networking giants. In this kind of business environment, with limited technical expertise, the prospect for IKF does not look very promising. Coming on to financials, as the company has started operations only lately, any trend study is not very much feasible. However, based on the financial performance so far, the net profit margin at 11.5% is not very encouraging. However, the income for the year 2000-01 has been pegged at an exceptionally high level of Rs. 66.68 Mn. as per projections prepared by Bank of Madura. Considering the current scale of operations, these projections look rather ambitious bordering unrealistic. The annualized EPS of current year, the EPS stands at meager 3 paisa. This translates in a PE of unimaginable levels on Rs. 10 offer price. But the basic factor that goes against the company is the operational capacity, which is the most fundamental requirement for investment in today's chaotic marketplace.
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Analysis Goa based D-Link (I) Ltd. is tapping the equity market with IPO of 1.523 Mn shares. The company has fixed the floor price of Rs. 300 for bidding. The company is one of the major players in the networking products in the country. The company was established in 1993 with active support of D-Link Taiwan, one of the top networking product manufacturers in the world. It owns 51% of the pre issue equity in the company. Currently D-Link is involved in manufacturing and marketing of LAN and WAN networking products. It also markets the offerings of Cisco and Lucent in India. The company is now embarking on expansion of manufacturing capacities in Goa which are running at much higher level than their rated capacities. Looking at the relative position of the company in respective products, it becomes clear that it is either leader in its product categories or is a major player in the same. The growth in the product categories is in three digits with software and telecom both being high priority areas. Coming to valuation, the company has fixed Rs. 300 as floor price for bidding. This translates in PE of around 8 on annualized earnings of current year. This is very much in line with the hardware players' valuations. Considering the business growth and the technical capacity of the company, the scrip is a good buy at Rs. 300.
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Source : www.indiacapital.com
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