IntraSoft appears to be a pricey IPO

The company’s operating profit has fallen by 3% and new stock is being issued at a high P/E of 21. 

IntraSoft Technologies Ltd, incorporated in 1996, which owns e-greetings card portal 123greetings.com, hits the market with its initial public offering (IPO) on 23 March 2010. Although the company’s fundamentals have improved marginally, the stock looks pricey at Rs145 at the upper band. Currently, there is no comparable stock in this space.

The promoters will hold 38.02% post-issue and 12.2% will be held by Intel Capital (Mauritius) Ltd. The issue closes on 26 March 2010. The company is issuing 37,00,000 shares at a price band of Rs137-Rs145. It plans to mop up Rs50.69 crore at the lower band and Rs53.65 crore at the upper band from the issue.

The funds will be utilised for branding and promotion, purchase of a corporate office in Kolkata, investment in technology infrastructure and general corporate purposes.

IntraSoft is engaged in providing electronic greeting cards, development of digital content and online marketing. According to comScore, between November 2008-October 2009, about 9.12 crore people visited the IntraSoft site.

The company’s net profit for FY09 stood at Rs5.32 crore, up 20% compared to Rs4.40 crore in the previous year. IntraSoft’s consolidated operating profit has fallen by 3% at Rs4.62 crore in FY09 from Rs4.77 crore in FY08. For the six months to September 2009, it registered a net profit of Rs3.10 crore.

Its earnings per share (EPS) for FY09 were Rs5.77 and Rs4.34 in FY08. Its return on net worth (RoNW) was 14.41% in FY09 compared to 11.35% in FY08. Its expected EPS works out to Rs6.70 for the year ahead on a PE of 21 on an annualised basis.

The company derives its revenue solely from advertisers and not subscribers. Overseas advertisers account for a major proportion of IntraSoft’s revenues. Its operating income from overseas advertisers (as compared to total income) in FY08, FY07 and FY06 was 68.42%, 79.07% and 93.87%, respectively. It registered a total income of Rs23.35 crore in FY09, up 16% compared to Rs20.17 crore last year.

Anand Rathi Advisors Ltd and Collins Stewart Inga Pvt Ltd are the lead
book-running managers of the issue. CARE has assigned an IPO grade of ‘3’ to the IPO indicating ‘average’ fundamentals.

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