Intrasoft Technologies IPO

IPO details
Price Band: Rs 137-145
issue size: Rs 50.7-53.7 crore
Date: March 23 - 26

ONLINE greeting card company, Intrasoft Technologies, is raising funds from the primary market to step up its branding and promotion and to purchase a new corporate office. Post-issue, the promoter group's stake will reduce to 59.4% from 79.3%. Intel Capital (Mauritius), who had made investments in the company in December 2007, will continue to hold 12.2% stake in Intrasoft after listing.

BUSINESS:

The Kolkata-based company runs 123greetings.com (123G), a greeting cards website. Its revenue depends upon online advertising. Currently, 65% revenue and 60% online traffic come from the US while the rest is from India.
   The company is the second-largest online greeting cards provider in the US after American Greetings. 123G attracted 90 million unique visitors last year, according to comScore Media Metrix.
   To expand its reach, the company has introduced two software facilities for users. Under Studio facility, card designers across the world can upload their designs to the website free of cost. This will help 123G cover more events and festivals across various countries. It's another facility prompts users if they supply a wrong e-mail id while sending e-cards.
   The company is also eyeing fast-growing online invitation business wherein users invite members of their user groups for social events. In July, it started gifting business by partnering with nine US vendors of gift items. The business currently contributes 10% to revenue.

FINANCIALS:

In five years ended March 2009, the company's revenue rose at a CAGR of 12% to Rs 23.4 crore. Net profit grew at a CAGR of 27.6%. The company's operating margin has expanded from 15.3% in FY05 to 24% in FY09. Its operating cash flows have witnessed volatility relative to net profits. For Intrasoft, cash flows are volatile due to minimum alternate tax (MAT) credit, faster depreciation method, and other income in the form of interest on fixed deposits.

VALUATIONS:

At the higher end of the price band, Intrasoft demands a P/E of 32.6 based on annualised net profit during the six months ended September 2009 and post-IPO equity. There are o strict peers to the company. Info Edge (India), which operates recruitment portal naukri.com, trades at a trailing 12 months P/E of 42. However, its business is largely driven by subscriptions unlike Intrasoft, which derives revenue through online advertisement.

CONCERNS:

Intrasoft is raising IPO funds to establish such partnerships. It needs
to be seen how well it can achieve its goal given that it competes with a big and well-established player. In FY11, the company's MAT credit will be over and it will attract a normal corporate tax rate of 33%. This is likely to erode its net profitability since it currently pays negligible amounts of taxes. The company expects to reduce the adverse impact through improved rate of advertisement. Again, the exact picture will emerge only after FY11. The company's valuations look aggressive given the fact that it operates in a very competitive segment and its revenue is based on highly volatile online advertisements. Further, its net margin level is uncertain post FY11 due to exhaustion of MAT credit. In this backdrop, investors may wait for valuations to drop post listing.