INTRASOFT TECHNOLOGIES LTD IPO NOTE

Transcription

1 25 th March, 2010 INTRASOFT TECHNOLOGIES LTD IPO NOTE The Owner of Research By, Bhaskar Pranav & Trushik ANS Research Desk (Research Wing of ANS Pvt Ltd) ARHAM Financial Centre Harihar Chowk, RAJKOT (Guj) Speak to: Drop a line to: research@anspl.net

2 Sector Issue Details Miscellaneous Issue Size Rs. 52,00,00,000 ERO Net Issue 37,00,000 Face Value Rs. 10/- Book Running Lead Managers Collins Stewart Inga Anand Rathi Advisors Ltd Registrar to the Link Intime Issue ABOUT THE ISSUE: Size And Purpose The Company is proposing an Initial Public Offering of 3,700,000 Equity Shares of Face Value Rs. 10/- each in a price band of Rs Authorized Share Capital of the company is Rs. 25,25,00,000 and Paid Up Equity Capital after the issue is Rs. 14,73,16,780. The entire issue of 37,00,000 equity shares is offer for sale from promoters and shareholders. Out of the issued shares at least 18,50,000 shares are reserved for QIB portion, at least 5,55,000 shares for non-institutional portion and at least 12,95,000 shares for the retail portion have been reserved. The issue consists of % of post issue paid up capital. Promoters Arvind Kajaria Sharad Kajaria RATINGS: CARE has given an IPO rating of GRADE 3 to the issue suggesting average fundamentals for the company. Company Address Registered Office : 5 th Floor, No.145, Rash Behari Avenue Kolkata , INDIA. Website Shareholders Pre Issue Shares % Promoters 56,00, Promoter Group 31,50, Intel Cap 17,97, Others 4,84, TOTAL 1,10,31, The net issue proceeds will be used for following objectives: Branding and Promotion; Purchasing a corporate office at Kolkata; Investment in technology infrastructure; General corporate purposes; Issue related expenses; and Achieve the benefits of listing on the Stock Exchanges. The average cost of acquisition of Equity Shares by the promoters, Arvind Kajaria and Sharad Kajaria is Rs per share.

3 INDUSTRY OUTLOOK Online Advertisements According to the IAB Internet Advertising Revenue Report for 2009 Second-Quarter and First Six Months Results ( IAB 2009 Report ), internet advertising revenues in the United States totaled $10.9 billion for the first six months of 2009, with Q2 accounting for approximately $5.4 billion. Internet advertising revenues for the first six months of 2009 decreased 5.3 percent from the same period in According to the IAB Internet Advertising Revenue Report for 2008 Full Year ( IAB 2008 Report ), the Internet has continued to grow in significance when compared to other adsupported media. Search has remained the leading format since 2004, and has had strong sequential growth over this period. Search is followed by Display Banners and Classifieds/Directories in percentage share of Internet advertising. Sponsorship revenues have dipped from 8.00% of total revenues in 2004 to 2.00% of total revenues the first six months of 2009, while Classifieds/Directories revenues have dropped from 18.00% of total in 2004 to 14.00% in 2008 and to 10.00% in the first six months of Online Greeting Cards According to a report by the Mintel International Group Limited on Greeting Cards and ecards in February 2008 ( Mintel Report ), in the United States, greeting cards are a $10.8 billion dollar market, with Christmas ($3.2 billion), Birthday ($2.6 billion), and Valentine s Day cards ($1.1 billion) representing the top three segments. The number of cards sent annually for Christmas has reached an estimated 2.2 billion. It is clear that people still want to connect, be remembered, and acknowledge others during key seasons or significant life events. From 2004 to 2007, the market has grown 34%, with Easter and Halloween cards experiencing the greatest increases. Sales for 2007 grew at a slightly slower rate due to an influx of value priced cards, though this also made greeting cards more accessible to those with lower disposable income. According to the Mintel Report, the sales of subscription based electronic greeting cards have increased by US$ 5 million from 2005 to 2007 and the electronic greeting card volume is approximately 300 million per year less than 5.00% of the number of paper cards being sold.

4 COMPANY OVERVIEW Originally incorporated in 1996 in Kolkata, ITL started its electronic greetings business in 1997 offering electronic greetings in India and worldwide. The company operates through its three subsidiaries namely 123Greetings.com, Inc. based at New York, US, One Two Three Greetings (India) Private Limited (Mumbai) and 123 Greetings (Singapore) Pte Limited (Singapore). The company owns and operates its flagship website, which is one of the most visited electronic greetings website worldwide. The domain name ( is owned by the company s subsidiary, 123Greetings.com, Inc but operated by ITL. Related Diversification: After becoming the country's largest e-greeting cards service provider through its website, IntraSoft Technologies Limited is now foraying into e-invitation cards segment. The company believes the market for e-invitation is twice as large as e-greeting cards. Decreasing Dependency from US Operation: With 90 million online visitors so far at Intrasoft Technologies is currently witnessing 70 per cent of its business coming from the US, followed by 28 per cent from India and rest from Far East countries. However, the company is reducing its dependence on the US market. Apart from e- greetings, the company is also focusing on offering gifting services.

5 POSITIVES AND CONCERNS ABOUT THE COMPANY Market leader in e-greetings web space Intrasoft Technologies Limited operates through 123greetings.com and subsidiaries, and is a market leader in e-greetings business. According to comscore Media Metrix, their Website was the largest (by number of Unique Visitors) electronic greeting cards website in India and second largest in the world. Unique business model The company s revenues are generated from advertisement published on their websites. ITL does not charge the user for accessing and sending electronic greetings. Hence, the company s popularity, measured by the number of visitors it attracts, provides a perfect platform for its advertisement business. Creative business strategy ITL is strongly considering its websites as a platform for online gifting services. It plans on exploring the possibility of offering online gift giving services on the Website by entering into e- commerce relationships with leading vendors in a variety of gift categories. This will boost its revenue from the gifts marketing. Also, this would attract more visitors on the website hence, increasing advertisement margins as well. Undiversified revenue stream The business model of ITL lacks in diversification Almost 90% of the company s revenues are generated from their advertisement business. There is no other stream or segment for revenue generation. Also, the revenues are highly dependent on Indian and US markets. Inbuilt Seasonality of the business The visitors on the company s website generally send greetings during Christmas/New Year, Valentine s Day and Diwali. Apart from these festivals, the Birthday Card visits are ongoing throughout the year but there is no consistency in the continuation of the business. Lack of major alliances or long term arrangements with advertisers Most of ITL s advertisement contracts are short term agreements which can be terminated without any cause, with a week s notice, without any termination related penalties. It does not have any alliances with major players like some of its competitors.

6 PE INVESTORS On December 24, 2007, ITL entered into a Share Subscription Agreement with Intel Capital (Mauritius) Limited, a FVCI registered with SEBI, by issuing 2,55,805 CCPS (Compulsory Convertible Equity Shares) and 1,000 equity Rs. 767 per share. CCPS were converted into equity shares holding and also there was a bonus issue of 1:6 by the ITL on October 16, Total number of shares held by Intel pre issue is 17,97,635 consisting of 16.30% of total paid up equity. Intel will hold 12.20% of the equity shares after the issue and the holding is free from any lock in period under SEBI s Venture Capital Funds Regulation. Average Cost Acquisition - The average cost of acquisition per share for Intel is calculated to be Rs approximately.

7 FINANCIAL HIGHLIGHTS Profit & Loss (Standalone Results) (Rs. In Lakhs) PARTICULARS June 2009 Mar 2009 Mar 2008 Mar 2007 Operating Income Other income Total Income Total Expenditure Depreciation & Amortization Interest Tax PAT Diluted EPS*(after bonus issue) SOURCE: COMPANY RHP 1. Total income of the company has grown at a CAGR of 10% in 3 years showing a business growth. 2. Expenditures for the company have historically been around 8% of the Net Sales. 3. PAT has increased from Rs. 327 lakh in 07 to Rs. 532 lakh in Dec 09 showing an increase of 60% in 3 years. 4. Diluted adjusted EPS is Rs till Dec. 09.

8 Balance Sheet (Standalone Results) (Rs. In Lakhs) Particulars Sep 2009 Mar 2009 Mar 2008 Mar 2007 Total Funds Total Debts Cash & Bank Bal Net Current Assets Total Assets Contingent Liability SOURCE: COMPANY RHP 1. Total Reserves for the company have increased by almost 100% in last 3 years. 2. The company has currently about Rs Lakh in Cash & Bank. 3. Total Assets for the company have increased by approximately 300% in 3 years while Total Debts have increased by approximately 100% for the same time frame.

9 Cash Flow (Standalone Results) (Rs. In Lakhs) PARTICULARS Sept 2009 Mar 2009 Mar 2008 Mar 2007 Cash From Operating Activities Cash From Investing Activities Cash From Financing Activities Net Cash Inflow/Outflow Opening Cash and Cash Equiv Closing Cash and Cash Equiv SOURCE: COMPANY RHP 1. The company is having a positive net cash flow from operating activities for last 3 years. There has been decrease in Trade & Other receivables, and higher Trade Payables. Interest income has also increased along with reducing depreciation. 2. Company is regularly investing in New Assets mainly in Fixed Assets. 3. Cash from Financing Activities is positive mainly because the company has issued equity to Intel in 2008 and taken loan in Interest charges are increasing continuously.

10 RECOMMENDATIONS We believe that investors should look to skip this company. The company s business model is very risky and not well diversified, though it is a uniquely creative business model. This could be a high risk return bet on long term. The valuation looks higher currently as the EPS post issue gives a very high P/E ratio. But can consider buying at a higher discount to issue price. So we recommend to AVOID for this IPO at the moment. Valuation Price Band EPS BV P/E P/B.V

11 Disclaimer: The information being provided to you is compiled from sources we believe to be reliable. ANS Pvt. Ltd cannot and does not take any guarantees about the accuracy, reliability, validity or timeliness of the information and/or data provided/made available to you in this document. The views are purely indicative. Neither ANSPL nor any of its associates, subsidiaries, affiliates, directors, and/or officials become liable or have any kind of responsibility for any loss or damage that you may incur from any decisions taken by you based on our recommendations. None of the information contained herein constitutes a solicitation from ANSPL to Buy and/or Sell securities and/or any Future, Options or Other Financial Contracts. Clients may exercise their own caution and double check or verify the information contained in our recommendations.