IntraSoft Technologies to debut on bourses

Shares of IntraSoft Technologies will debut on the stock exchanges today, 12 April 2010. The company had priced its initial public offer (IPO) at the higher end of the Rs 137 to Rs 145 per share price band.

Tata Motors is reportedly planning to sell part of its shareholding in Tata Cummins, a diesel engine joint venture, as it explores options to divest non-core assets to reduce debt.

Key shareholders of budget airline SpiceJet have reportedly rejected an offer by the Reliance Anil Dhirubhai Ambani Group to pick up a 51% stake in the airline for Rs 40 - 45 a share.

Reliance Infrastructure reportedly expects the governments in Gujarat and Andhra Pradesh to invite bids to develop regional airports it is interested in taking up.

A team from the US oil major, Exxon Mobil, is reortedly set to assess the eastern offshore asset of ONGC for a possible tie-up.

Newspaper publisher D B Corp will demerge its FM Radio business and merge Bhaskar Publication & Allied with itself. It has set up a committee of directors to examine the feasibility of restructuring the organisation.

The government has reportedly launched discussions between ministries about opening multi-brand retail to foreign direct investment.

The Comptroller and Auditor General (CAG) has reportedly found a series of violations on the part of telecom minister A Raja in awarding unified access service licenses to eight companies in January 2008.

Intrasoft Technologies Grey Market Premiums

Company Name	Offer Price (Rs.)	Premium (Rs.)
Shree Ganesh Jewellery	260	Discount
Infrasoft Technology	145	10 to 12
Goenka Diamond & Jewellery	135	Discount

Intrasoft Tech fixes issue price at Rs145/share

Intrasoft Technologies Ltd., which operates the website www.123greetings.com, has fixed the issue price for its IPO at Rs 145 per share. The issue which opened for subscription on March 23, and closed on March 26, received a good response from investors and was subscribed 18.95 times. The overwhelming response was seen from non-institutional investors, their reserved portion got subscribed 21.60 times followed by retail and qualified institutional investors, which portion overbid 13.51 times and 21.97 times, respectively. The company has raised Rs536.5mn through the issue of 37,00,000 shares. The issue constitutes 25.12% of the fully diluted post issue paid up equity share capital of the company. The proceeds from the IPO will be used fund the company’s requirements for branding & promotion, purchasing a corporate office in Kolkata, investment in technology infrastructure and for general corporate purposes. Collins Stewart Inga Pvt. Ltd. and Anand Rathi Advisors Ltd. were the Book Running Lead Managers to the issue.

Intrasoft Technologies IPO Review

Intrasoft Technologies, promoted by Arvind Kajaria and Sharad Kajaria, was originally incorporated as Regency Extrusions & Plastics Private Limited in 1996 to carry on plastics business. The name was changed to Intrasoft Technologies in 1997. The company provides electronic greeting card services through the principal website, www.123greetings.com, which is one of the leading electronic greeting card websites. The domain name is owned by its subsidiary, 123Greetings.com, Inc, and operated by the company. The company believes that its substantial user base (65% women) and emphasis on enabling social expressions on celebratory and social occasions make online gifting and related e-commerce activities a logical next step for its website.

The company is, therefore, exploring the possibility of offering online gifting services on the website. Along with e-commerce, it is also coming out with new features like 123Greetings Studio, which allow users to upload their own designed cards, address book. By storing addresses and e-Invitations, users can send bulk invitations for parties, ceremonies etc. The management expects traffic to grow on the back of these features. The management expects the cost for setting up e-invitations at about Rs 8 crore.

The company derived 89.91% of its revenue from online advertising in FY 2009 and 85.92% in the six months ending September 30, 2009. All advertising is cash advertising. There is no reciprocal advertising. The advertisers are mainly from the entertainment, retail, IT and internet industries including travel, job, matrimonial and games portals. The company also receives additional revenue by providing certain software development services to third parties and advertising revenue from other websites. US contributed 50.63% of the revenue in the six months ended September 2009 and 67.26% for FY 2009. The management expects the share of revenue at 65% from US, 30% from India, and 5% from rest of world.

During the nine months ended December 31, 2009, around 147 advertised with the company and in FY 2009 149. The advertising contracts are for periods ranging from one month to a year. Advertising is mostly based on the fixed fee model based per every thousand times that an advertisement appears on its website (95.48% for FY 2009 and 98.71% for the six months ending September 30, 2009), with the remaining through the cost per click (CPC) model and cost per action (CPA) model.

The company also operates 123india.com, which offers news, finance, cricket etc. It also provides online advertising development, integration and customization services to clients. Because of the high cost of assimilating news, the company currently has no plans to monetize this website.

Currently, most of its content is in English. The company has a team consisting of 16 creative professionals, who develop in-house content including artistic, photographic and musical content for its electronic greeting cards. It has a range of over 20,000 electronic greeting cards covering over 3,000 every-day and seasonal categories including rich and diverse multimedia content and are designed to cater to varying geographical and religious celebrations, occasions and other events. The website is refreshed automatically every 15 minutes. The company uses a robust and flexible hardware and software technology platform to ensure that its website and its electronic greetings services are capable of supporting large and varying numbers of users. The company's cloud computing based technology platform hosts its data and applications on remote infrastructure and is scalable and availed by it as and when required. This enables the company to draw upon varying amounts of hardware and software resources to support the varying number of visitors to its website, preventing wasteful expenditure during times of low user traffic.

Strengths

* The company's website www.123greetings.com is one of the leading electronic greeting card websites. According to ComScore Media Matrix, as derived from comscore.com on February 2, 2010, the website was the largest (by number of unique visitors) electronic greeting cards website in India with a sum total of 1,50,33,248 unique visitors during the twelve months from November 2008 to October 2009. The company's website received a sum total of 20,83,30,810 page views and 186 million minutes during this period, according to comScore Media Matrix ,derived from comscore.com on February 2, 2010. Globally, according to comScore Media Metrix, derived from comscore.com on February 2, 2010, the company's website was the second largest (by number of unique visitors) electronic greeting cards website in the world with a sum total of 9,12,55,566 unique visitors, with an average of 3,96,910 daily visitors and a sum total of 16,11,78,000 visits during the twelve month period from November 2008 to October 2009.

* The company has seen good improvement in operating margins from 17.6% in FY 2005 to 26.3% in FY 2009. It has further gone upto 39.8% in the first half of FY2010. The company's cloud computing based technology platform hosts its data and applications on remote infrastructure, which is scalable and is availed by it as and when required. This enables the company to draw upon varying amounts of hardware and software resources to support the varying number of visitors to its website, while preventing wasteful expenditure during times of low user traffic.

Weaknesses

* Of the IPO proceeds of Rs 50.69 – Rs 53.65 crore, about Rs 20.36 crore are to be used towards brand & promotion and Rs 13 crore is to set up of corporate office. This would go to the expense line items of the company. The company would be amortizing these over the next 5 years. The reciprocal growth may not be assured. The balance proceeds of Rs 15.53 – Rs 18.49 crore, after deducting for issue expenses, would go to the cash & bank balance and would earn investment income, which would pull down the return on equity of the company. This amount is over and above the net cash (after deducting debt) of Rs 15.58 crore the company holds.

* Advertising expenditure forms part of discretionary expenditure of most of the advertisers. The online advertising market is highly prone to economic downturns. The downturn would mean an adverse impact on the spending power of companies, which have increasingly become conservative in their expenditure.

* The market for online card is highly competitive. There are no substantial barriers to enter this market.

Valuation

Intel Capital (Mauritius) holds 12.2% of the post issue share capital at a price of Rs 109.57 per share. The money was invested in December 2007.

The company has treasury stock of 17.5 lakh or 11.9% of the post issue equity held in a trust. These shares can be sold by the company, which would lead to increase in free float at the stock exchanges.

At the issue price of Rs 137 – Rs145 on the FY2009 consolidated EPS of Rs 3.6, the PE works out to 37.9 – 40.1 times. On annualised half-yearly consolidated EPS of Rs 4.2, the PE works out to 32.6 – 34.6 times. However, annualising would not give a correct picture as the second half is better than the first half due to festival season. There is no comparable listed company. Such companies can get abnormally high valuations if they can report sharp growth rates on consistent basis and market conditions are favorable. However, till now, in spite of very small size (FY2009 revenue only Rs 21.39 crore), growth rate has not been exciting enough to justify the asking P/E.

IntraSoft Technologies IPO Analysis

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 (123G).

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 123G, 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.

Business concerns

123G is a Web site that allows users to send greetings to others. Its revenues are purely derived by offering advertising space in its Web site to companies and individuals. Based on the number of times the advertisement is viewed, companies pay 123G.

This accounts for over 98 per cent of advertising revenues while the rest come from other models such as ‘cost per click' and ‘cost per action' basis.

This model may be unsuitable for rapid expansion. First, 123G is the only product and not one of the products.

To elaborate on this, top Web sites such as rediff, indiatimes, yahoo! and MSN have full-fledged Web sites offering news, business updates, astrology services, sports updates, shopping options and a host of other services for which there are always takers.

This broadens the advertising base and allows for greater ‘per-view' advertising revenues. 123G's user base is likely to be only a small fraction of the overall number of Internet users looking to send greetings.

In addition, social networking sites such as Facebook, Orkut and Twitter as well as instant messaging and chat facilities of Web sites may offer quicker and easier way of greeting people.

Second, Web sites such as yahoo! and indiatimes also offer greetings services to customers. Competition also exists in the form of other specialised greeting card players such as AG Interactive and evite.com and many others. So the ability to hike advertising rates is likely to be limited.

In the US, from where the company derives nearly half of its revenues, Internet advertising is expected to grow by only 6.4 per cent over the next three-four years, according to a report from PWC on Entertainment and Media.

In India, Internet advertising is expected to grow at a healthy rate of 32 per cent to Rs 2,000 crore by 2013, which is still only 5.5 per cent of the overall advertising pie.

Given this relatively small size and any number of global and local Web sites with a host of offerings competing to grab their advertising share, a Web site with a single offering such as 123G would be hard pressed to drive growth.

The offer

IntraSoft 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.

IntraSoft IPO at Rs 137-145 per share price band

Issue opens on 23 March 2010

IntraSoft Technologies, which owns 123greetings.com, has priced its initial public offer of 37 lakh equity shares of face value Rs 10 each in the Rs 137 to Rs 145 per share price band. The issue will open on 23 March 2010, and will close on 26 March 2010.

The company will raise Rs 50.69 crores at the lower end of the price band and mop up Rs 53.65 crores at the upper end. The issue constitutes 25.12% of the post issue paid up capital.

At least 50% of the book build issue will be reserved for qualified institutional buyers (QIBs); not less than 15% reserved for non-institutional bidders and 35% reserved for retail individual bidders.

IntraSoft plans to fund the company's requirements for branding & promotion, purchasing a corporate office in Kolkata, and investment in technology infrastructure from the issue proceeds.

CARE has assigned IPO Grade 3 to the IPO, indicating average fundamentals.