Dhanus Technologies is entering the capital market on 10th September, 07 with a public issue of 38.35 lakh equity shares of Rs.10 each in the band of Rs.280 to Rs.295 per share. The company presently operates in three areas of business of Telecards, Teleservices/ITeS/BPO and software services and Vehicle Tracking Services.
It has been seen that inspite of negative perception for IT sector and IT Companies and more especially, for big players, the IPO of software and IT companies have been receiving good response. This creates dilemma in mind, whether this appetite would continue and are valuations sustainable?
The company has a suite of customized prepaid phone cards issued and sold in India, U.S., U.K. and Singapore. This segment had total income of Rs.50.32 crores in FY 07 (ending June) with EBIT of Rs.9.54 crores. The company has specialisation of developing software in IP Telephony, IVR Based Business Process Application. This segment had total income of Rs.31.53 crores for FY 07, with EBIT of Rs.14.94 crores. BPO segment had income of Rs.8.42 crores with EBIT of Rs.5.20 crores. Vehicle Tracking Service business having good potential, domestically, is yet to catch on, as it had income of just Rs.12 lakhs and EBIT of Rs.2 lakh.
For FY 07 total income of the company was at Rs.92.54 crores with PBT of Rs.26.30 crores and PAT of Rs.22.17 crores, which has resulted into an EPS of Rs.16.14.
The company has now taken up a capex of Rs.118 crores mainly to build corporate office and network operating centres, ITES, Software Support Services. This is estimated to cost Rs.21.68 crores. Rs.50.52 crores has been earmarked for expanding and improving company's infrastructure support systems for its ITES and fleet tracking business. However, separate allocation of Rs.37.89 crores, has been made for purchase of equipments for Fleetrac Services. Why this duplication?
The jump in the topline for FY 07 has been about 152% while PBT rose by 107% only. Major revenue earner (56%) Telecom segment is having pressure on its margin as also litigation from established players of the segments. Even software segment had drop in the margin as topline of FY 07 grew by 269% while EBIT rose by just 165%. Fleetrac, which has good potential, is yet to take off.
Present equity of the company of Rs.14.11 crores, would rise to Rs.17.94 crores. EPS for FY 07, of about Rs.16, discounts present issue price by about 18.50 times (upper band of Rs.295 per share). Tulip IT, a company, growing by about 50% on topline and by 100% on bottomline, is ruling at a PE multiple of 18, based on FY 08 earning. There have been concerns about the company, due to so many litigations initiated and pending. Even growth on topline is compromised with margins. So, post issue, the growth is likely to come at the cost of margin pressure. Main telecom business, may have fall in future earnings.
Considering all these, share does not have much room for appreciation for prospective investors. Upside of Rs.350 is possible, in long term within 6 - 12 months. So investors having long term investment perspective in mind can go for it.
Short term or listing gains cannot be predicted.