Madras Fertilisers, Axis Bank, Thermax, Power Sector, Power Grid Corporation, Textile Sector, Thinksoft Global, Rolta, Hero Honda, EMCO, Tata Motors

Madras Fertilisers, Axis Bank, Thermax, Power Sector, Power Grid Corporation, Textile Sector, Thinksoft Global, Rolta, Hero Honda, EMCO, Tata Motors, Tata Steel & ICICI Bank

Thinksoft Global Services attracts 31% premium on debut

Settles at Rs 164.30 on the BSE compared to IPO price of Rs 125

Shares of software firm Thinksoft Global Services settled at Rs 164.30 on the BSE, a premium of 31.44% over the initial public offer price of Rs 125.

On BSE, 1.79 crore shares were traded on the Thinksoft Global Services counter.

The stock hit a high of Rs 170 and a low of Rs 100. The stock debuted at Rs 100, a discount of 20% over the initial public offer (IPO) of Rs 125 per share.

The current price of Rs 164.30 discounts the year ended March 2009 EPS of Rs 14.40 (based on consolidated financial performance), by a PE multiple of 11.40.

The Chennai-based firm had raised Rs 45.57 crore through the recently concluded IPO. Thinksoft Global Services' IPO ended on 1 October 2009 with subscription of 2.25 times. The IPO got bids for 82.12 lakh shares as against 36.46 lakh shares on offer.

Thinksoft Global Services had on 24 September 2009 extended the closing date of the IPO to 1 October 2009 from the earlier 24 September 2009 as the issue failed to garner sufficient subscription. Also the company had lowered its price band for its initial public offer (IPO) to Rs 115-125 per share from the earlier price band of Rs 120-130 per share.

The IPO was a mix of a fresh issue of 13.5 lakh shares and an offer for sale of 22.96 lakh shares by Gibraltar-based fund, Euro Indo Investments.

Thinksoft Global Services is a financial software testing company. The company plans to set up a Rs 16-crore facility at the Madras Export Processing Zone in Chennai. The proposed 400-seat facility, to be funded with the IPO proceeds, would involve Rs 13.7 crore for infrastructure development and Rs 1.66 crore for equipment.

The expansion of the unit would help the company expand to newer markets apart from its base in Europe, which accounts for 60% of its revenue.

On a consolidated basis, company's net profit rose 47.55% to Rs 14.49 crore on 24.06% rise in sales to Rs 92.09 crore in the year ended March 2009 (FY 2009) over year ended March 2008.

Thinksoft Global Services, Euro Multivision IPO

Thinksoft Global Services, Euro Multivision IPO

Thinksoft Global Services - IPO Recommendation

Thinksoft Global Services - IPO Recommendation

IPO Recommendation - Thinksoft Global Services

Focused on testing services in BFSI vertical

The IPO seems to be mainly to give an exit route to selling shareholders

Promoted by technocrats, Mr Asvini Kumar, Ms Vanaja Anand and Mr Mohan Parvatikar, Thinksoft Global services, is a testing services company focused on the Banking, Financial Services & Insurance (BFSI) vertical. Europe contributes more than 50% of the revenues. The company has acquired the ability to customize testing solutions for clients across a variety of business areas and products for system integrators, product development companies and to clients in the finance sector to achieve near defect free roll outs. The company has a 360 seat offshore facility in Chennai and offices in New York, London, Frankfurt, Singapore, Brussels, Sydney, Bangalore and Chennai.

In the BFSI segment, the company does testing in core banking/retail banking (for products like finacle, Banc 24, Flexcube, FinnOne etc.), treasury (Kondor+, Kastle, Urbis), Investment Banking (MIDAS), retail lending/loans/mortgages (Pan Credit, LSI-NT, Foresee, Cheque mate etc.), credit cards (VisionPLUS, TS2, Prime), payment system (STS – CWS), corporate banking (Flexcude), Insurance (GENIUS, METFACS2, PREMIA), private banking (ORBI), CRM (Siebel) and Campaign management (ClarityQ).

As of March 31, 2009, the company has 34 active clients. The company added 17 clients in FY2009. Of the revenues for FY2009, 15% was contributed by new clients. The top 10 clients contributed 92.66% of the revenues for FY2009 down from 94.85% in FY2008.

The share of onsite to the operating revenues has increased to 62.98% from 48.59% in FY2008. The management has indicated a target level of 55%. Most of the revenues are generated primarily on the time and material basis about 88% down from 93% in FY2008. The level over the last 4 years is 87-93%.

Within the BFSI segment, for FY2009, banking contributed 43% up from 29%, credit cards segment contributed 37% down from 52%, capital market segment contributed 10% up from 8%, Insurance contributed 8% up from 6% and others contributed 5% up from 2%.

As of March 31, 2009, the headcount was 538 employees down from 582 at end FY2008. The utilization for FY2009 was 59% down from 65% in FY2008. As of August 2009, the employee strength has further come down to 523 employees of which testing staff is 383, domain experts 72 employees, marketing are 25 employees and foundation & support staff are at 43 employees.

In terms of geographies, Europe contributed 53.7% of the revenues down from 58.2% in FY2008. The share of Europe has come down gradually from a high of 76.9% in FY2006. Singapore & Middle East contributed 26.7% up from 17.1% in FY2008 and 5.4% in FY2005. Australia & US contributed 16.1% against 16.8% in FY2008 and 8% in FY2005. India contributed 3.5% of the revenues down from 8% in FY2008.

The company had received investment of about Rs 5.13 crore from Euro Indo Investments & its promoter (Vinod Ganjoor) in 2000-2001. The fund is offering 90% of its stake for sale in the public issue. This accounts for about 63% of the public issue. The balance 37% is being raised to fund setting up new testing centre at MEPZ-SEZ adding 400 seats to be completed by March 31, 2011 at a capex of Rs 16.09 crore.

Strengths

* The revenues of the company have reported CAGR of 43.5% in rupee terms and 42.7% in US dollar terms (assuming average INR/US$) over the period FY2005 - FY2009. However, the growth was lower at 8.7% (in US$ terms) in FY2009 over FY2008 impacted by the global slowdown.

* The company has close to 10 years experience in financial domain. Within the BFSI vertical, the company has opportunity in the replacement of legacy systems/applications with off-the-shelf products, addition of new banking channels such as such as Mobile/e-Banking, innovation in cards markets such as Contact less cards, Chip and Pin – Smart cards (EMV), industry initiatives such as Single Euro Payment Area (SEPA), growth in Middle Eastern region especially in Islamic Banking, opportunities to mine existing accounts by expanding width and depth of engagements.

Weaknesses

* The company has high dependence on few clients with more than 90% of the revenues coming from top 10 clients. Top 10 clients contributed 92.66% in FY2009, 94.85% in FY2008, 96.99% in FY2007, 97.64% in FY2006 and 94.64% in FY2005. Top client contribution for FY2009 was 26%.

* The services of the company are part of the discretionary spend of any client. There has been a slump in the discretionary spend by clients all across verticals. While it seems to have bottomed out, how fast the discretionary spend will pick up is not clear.

* The company is focused on only one vertical i.e. BFSI. The vertical has seen a major impact due to the challenging economic environment and will remain very sensitive to fluid global economic environment.

Valuation

At the price band of Rs 120 - 130, on the consolidated FY09 EPS of Rs 14.4 on post IPO equity, PE works out to 8.3 – 9 times. The company has cash on books of Rs 26 per share for FY2009 on post issue share capital. Excluding this cash, the P/E comes down to 6.5 – 7.2 times.

Considering the cash on books, trend of operating cash flow and the capex plan, the IPO seems to be mainly to give an exit route to the selling share holders.

Of the small software companies focused on BFSI space, Nucleus Software, a product company is trading at TTM PE of 11.1 times (pre cash) and 7.2 times (post cash) and Saksoft, a testing services cum product company (similar sized company in terms of revenues) is trading at TTM PE of 5.1 times. Nucleus Software would command a higher PE as it is product centric as against Thinksoft which is a services company.

via CM

Thinksoft Global Services IPO Analysis

Investors can avoid the initial public offering of Thinksoft Global Services, a software testing company, given the concerns that surround its performance and global trends in the IT deal landscape. Its niche offerings may also force it to rely on a smaller universe of clients.

At the upper end of the price band of Rs 130, the offer discounts its 2008-09 per share earnings by about nine times on an expanded equity base. Most mid-tier IT companies, even those of much larger scale than Thinksoft, trade at about the same valuation, suggesting that the offer is not cheap compared to peers.

Thinksoft is a niche player, in the sense that the company offers software testing services to clients only in the banking financial services and insurance (BFSI). This limited offering of relatively lower value services, and to a single vertical, could stunt scalability.

To achieve the scale of even existing mid-tier IT companies, a blended offering of application development and maintenance, software testing, BPO and a small portion of high-end services catering to two-four verticals may be necessary. Reinforcing this is the fact that despite 11 years of operation, Thinksoft continues to have relatively small revenues of Rs 95.7 crore in FY09. Over the last four financial years (2004-09), revenues and profits grew by 44.1 per cent and 74.6 per cent, respectively, on a compounded annual basis. The company derives over 80 per cent of its revenues from clients based in Europe, West Asia and other Asian countries.
Business and macro concerns

Thinksoft derives nearly 93 per cent of its revenues from its top 10 clients making for very high client concentration levels. This is accentuated by the fact that its largest clients contributed 26 per cent to its 2008-09 earnings.

Any cancellation or reduction in volumes of projects from its top clients can thus significantly dent revenues. The company derives nearly 62 per cent of its revenues from services delivered onsite making for a sub-optimal cost structure. Mid-tier IT companies typically derive 60-80 per cent of their revenues from offshore locations and are thus able to maintain wage and cost structures to manageable levels.

Nearly 88 per cent of the company’s revenues come from projects that are billed on a time & material basis. This means that the company is all the more susceptible to cuts in pricing affecting most IT players.

Then there are the industry concerns. Testing as a service has seen a decline in contribution in revenues for top tier IT players over the last one year, which should serve as a lead indicator on the demand environment for such services. Mid-tier IT players such as Hexaware and MindTree have strong presence in the testing practice and are more integrated in terms of offerings, thus adding to the competition.

Recent deals, at least larger ones, have been awarded after considerable vendor consolidation by clients. This means that a number of small and medium-sized vendors who were taken for their ‘niche’ offering are done away with as large vendors can anyway offer all those services. Recent deals won by Indian majors suggest that lower-end services such as application development and maintenance could be the ones to increase volumes. Any software testing component in these deals could be catered to by existing large or mid sized IT players, what with ‘more for less’ being the fiat from clients.

Finally, being present in one service and one vertical seriously limits future growth prospects, both in terms of scalability of business or climbing up the value chain of service offering.
The Issue

At the upper end of the price band (Rs 120-130), the company hopes to raise Rs 47.4 crore. Of the 3,646,000 shares on offer, nearly 63 per cent of it is an offer for sale by an existing shareholder — Euro Indo Investments.

Of the Rs 17-odd crore that would remain with Thinksoft, the company is looking to build a new software testing centre with an additional seating capacity of 400. The company has 360 employees offshore in its existing facility in Chennai.

via BL

Thinksoft Global sets Rs 120-130 per share price band for IPO

Public offer to remain open between 22 and 24 September 2009

Software firm Thinksoft Global Services said on 15 September 2009 it has priced its initial public offer (IPO) in a band of Rs 120 – 130 per share. The IPO would open for bidding on 22 September 2009 and close on 24 September 2009, a newspaper advertisement showed.

Thinksoft will issue 13.5 lakh new shares, while two existing investors - Euro Indo Investments and Vinod Ganjoor - will sell another about 23 lakh shares. The issue constitutes 36.27% of the company's stake post the offer. The company intends to utilise the proceeds of the fresh issue to establish new testing centres.

Thinksoft is a specialist in financial software testing with global clients in USA, UK, Europe, India and Asia-Pacific.