Give the issue a skip
Acropetal Technologies Limited (ATL) is tapping the capital markets with an IPO in a price band of Rs 88-90 to raise Rs 170 crs. The issue opens on Monday the 21st of February and closes on Thursday the 24th of February.
| Price Band | Rs 88 – Rs 90 |
| Offer size in shares | 1,93,18,181 shares at Rs 88 to 1,88,88,889 Equity Shares at Rs 90 |
| Issue Size | Rs 170 crs |
| QIB’s | 96,59,091 Equity Shares at 88 to 94.44,445 Equity shares at Rs 90 |
| Non Institutional Investors | 28,97,727 Equity Shares at 88 to 28.33,333 Equity shares at Rs 90 |
| Retail Investors | 67,61,363 Equity Shares at 88 to 66.11,111 Equity shares at Rs 90 |
| Marketcap Post Listing | Rs 346 crs at lower band and Rs 350 crs at higher band |
| Book Running Lead Manager | Saffron Capital Advisors Private Limited |
| Isssue Opening Date | Monday 21st February |
| Isssue closing date | Thursday 24th February |
| IPO Grade | ICRA grade 3/5 indicating average fundamentals |
| Paid -up Capital Post IPO | 3,93,18,181 Shares at Rs 88 to 3,88,88,889 Shares at Rs 90 |
| Bid Lot | 60 shares |
| Bidding Amount for Retail | 2220 shares at Rs 90 or Rs 1,99,800 per application |
Business
ATL started its business in 2002-2003 with its focus on Engineering Design Services. The company offers a portfolio of services which includes concept design, product design and development, advanced analysis, reliability engineering and value engineering. ATL offers IT/ITES solutions in the enterprise space to allow organisations to optimize their core business activities like resource management, customer relationship management and supply chain management. ATL is currently working on the following six verticals.
- Engineering design Services
- Healthcare Services
- Enterprise and IT Services
- Energy and environment Services
- IT Infrastructure Management Services
- IT Security Consulting Services
Objects of the Issue
The objects of the issue are as follows: –
| 1. Proposed Acquisitions | Rs 55.00 crs |
| 2. Set up Software /development Centre and Corporate Office | Rs 26.19 crs |
| 3. Expansion and Establishment of Overseas offices | Rs 19.45 crs |
| 4. Part repayment of term loans | Rs 25.00 crs |
| 5. Additional working capital requirements | Rs 25.00 crs |
| 6. Public Issue Expenses | Rs 15.00 crs |
| 7. General Corporate Expenses | Rs 04.36 crs |
| 8. TOTAL | Rs 170.00 crs |
Financials
ATL reported consolidated revenues of Rs 100.60 crs for the year ended March 2009 and Rs 153.45 crs for March 2010. In the current year it has reported revenues of Rs 151.88 crs for the nine months ended December 2010. Its net profit after tax was Rs 18.92 crs for year ended March 2009, Rs 35.71 crs for March 2010 and Rs 28.38 crs for nine months ended December 2010.If one were to look at the standalone numbers then the revenue would be Rs 92.80 crs for March 09 and Rs 108.08 crs for March 10. It would be Rs 106.37 crs for the nine months ended December 2010. The net profit after tax would be Rs 16.58 crs for March 09 and Rs 19.55 crs for March 10. For the nine month period ended December 2010, the net profit would be Rs 18.13 crs.
Comparisons
ATL has compared itself with Accentia Technologies, EClerx Services, Genesys International, Geometric, Net4 India, Nucleus Software, Omnitech Infosolutions, R Systems International, Sonata Softwareand Zenith Infotech. The price earnings ratio as mentioned in the RHP varies from 5.8 to 60.2.
Valuations
ATL earned an EPS of Rs 4.81 for the year ended March 09 and Rs 9.08 for March 10. The earnings in the nine months ended December 2010 on an annualised basis was Rs 9.63. The above earnings are based on an equity price of Rs 88. In case the issue price is at the upper end the dilution would be less and the EPS would change to Rs 4.86 for March 09, Rs 9.18 for March 10 and Rs 9.73 for the nine months on an annualised basis. The PE multiple at the lower and upper band would be 18.29 times to 18.52 times based on March 09, 9.69 times to 9.8 times based on March 10 numbers and 9.14 times to 9.25 times based on 9 months annualised numbers as of December 10.
Concerns
The objects of the issue include Rs 55 crs or roughly 1/3rd for acquisition. The global scenario particularly the US is improving and valuations of companies have improved in recent quarters. This RHP (Red Herring Prospectus) is fairly outdated and the target acquisition may or may not happen and even if it does may not happen at the same price. Secondly the company has invested in a subsidiary Binary Spectrum Softech Private Limited and acquired a 20.48% stake at an investment of Rs 510 lacs. What is shocking is that the acquisition was at a price of Rs 12,500 per share when the book value as on that date was a mere Rs 89.53 per share. This is not enough because the other existing shareholders of the company are the present promoter, Directors and Key Management Personnel.
The company is a software company and yet its asset turnover ratio is very poor. ATL had gross fixed assets less depreciation of Rs 114.96 crs as of March 2010 and Rs 131.23 crs as on December 2010 while its turnover was Rs 153.45 crs in March 10 and Rs 151.88 crs in nine months ended December 10. The PE for a software company is high and also the EV/EBITDA is at over 5 times.
Conclusion
The secondary market is extremely volatile and investors just don’t seem to make any money in IPO’s in recent times even in strong fundamental FPO issues of the Government. It makes good sense to avoid or skip issues where promoters are unknown, valuations appear high, and valuation parameters are not very compelling to invest. It is the time to preserve cash and avoid anything which even remotely looks expensive. Given the present scenario it makes sense to skip the issue.
SEBI Disclaimer: – I do not intend to subscribe to the above issue.
