IPO Analysis Review – IntraSoft Technologies – Avoid
IntraSoft Technologies IPO is looking to raise Rs 53.6 crore at the upper end of the price band (Rs 137-145). The proceeds are to be spent in branding and promotion and for purchasing a corporate office in Kolkata. Investors can give the initial public offering of IntraSoft Technologies a miss, given the stiff challenges that the company faces in terms of scalability and ability to attract advertising revenues. The company owns the Web site 123greetings.com.
At Rs 145 (upper end of price band), the company asks for 36 times its likely per share earnings for FY10. This makes the offer quite expensive given that it is the same level that Info Edge (which owns naukri.com), which generates more than 10 times the revenues of IntraSoft, commands.
The company has seen its revenues over a four-year period grow at a compounded annual rate of 11.9 per cent to Rs 23.4 crore in FY09, while net profits grew at 25.7 per cent to Rs 5.3 crore.
The growth in net profits may have been much lower but for stringent cuts in employee costs. For the first half of FY10, the company has managed revenues of Rs10.5 crore and net profits of Rs 3.1 crore.
Just to put that number in perspective, Info Edge tripled its revenues over a three-year period and more than quadrupled its profits.
IntraSoft, which through its main Web site 123Greetings, generates revenues by selling spaces on its Web site to advertisers, has clearly found scalability a challenge as evidenced by its growth rates. Its current business model may not allow it to garner greater advertising revenues, nor will it be able to ward off competition easily.
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