Vishal Information Technologies is entering the capital market on 21st July 08 with a public issue of 27.90 lakh equity shares of Rs.10 each, in the price band of Rs.140 to Rs.150 per share. Of this, fresh issue is of 17.90 lakh shares while offer for sale is of 10 lakh shares.
The company is a very tiny player in the field of data digitalization, E-Publishing, digital library, E-Accounting and Fund Accounting, which covers all the range in IT enabled services other than voice call centre. However, the scale of operations of the company is quite small with topline at Rs.41 crores for FY 08 with a PAT of Rs.12.36 crores, resulting in an EPS of Rs.13.90.
Share now being offered in the band of Rs.140 to Rs.150, is resulting in a PE multiple of 10 to 11 times, based on historic earnings. Present valuations of such companies in the secondary market are quite low at a PE multiple of 4 to 5 times, which has much larger scale and better profitability.
The company is now expanding its seat capacity from 250 to 450 for Data digitalization , of E-Publishing from 150 to 250 while of Digital Library from 75 to 100 seats. All this is estimated to cost Rs.30 crores including issue expenses. This is being met by preferential allotment of 3.10 lakh shares made to IDBI in March 08 at Rs.120 per share for Rs.3.72 crores while about Rs.25 crores would come from the proposed issue.
As discussed earlier, the valuations are definitely stiff and are for a very small amount for which primary market is not helping the companies to mobilize such an amount unless and until it is done with hand in gloves with the operators. The net worth of the company at Rs.55 crores is largely blocked in sundry debtors of Rs.30 crores, (a cycle of about 9 months) and loans & advances of Rs.6.50 crores. Such a long debtor cycle is always risky for any business. Also, presently the company has no borrowings and hence it would have been prudent for the company to go for borrowings which would have been a cheaper route and even debt equity ratio would have remained at a very low level of 0.5 : 1.
The recent experience of such small IPOs have shown that no response has been received from the public and such IPOs were managed by the operators in collusion with the promoters of the company, ultimately causing huge loss to the investors and traders.
A clear advice is to remain away from the issue as much better stocks are available in the secondary market.