Jan 04, 2010
Infinite Computer Solutions (ICSL), a Delhi-based company, is probably the first software company that will be hitting the IPO market in 2010. The company is tapping the capital market with a public offering of 1.15 crore equity shares of face value of Rs 10 each. At the time of going to press, the company had not come out with the price band or minimum bid or opening or closing date of bids. But for the benefit of our subscribers, we will be carrying our recommendation on our website www.dsij.in once the company discloses this information. The IPO will constitute 26.17 per cent of post-issue equity. Out of the total, 57,33,600 would be fresh issue of shares, while remaining 57,69,400 would be an offer for sale by Whiterock Investments.
The Business and Financials
ICSL is a global service provider of infrastructure management, intellectual property (IP) leveraged solutions and IT services and operates with 12 offices across globe including offices in the US, UK, India, China, Malaysia, Singapore and Australia. The company has delivery centers in Bengaluru, Gurgaon, Hyderabad and Chennai. The company’s clientele includes Verizon Communications, IBM, AOL (America Online) and other major Fortune 500 companies. The company’s services span from application management outsourcing, packaged application services, independent validation and verification, product development and support to higher value-added offerings, including managed platform and product engineering services. Company’s telecommunication-specific services and solutions to telecom original equipment manufacturers (OEMs) and independent software vendors (ISVs), which contribute major part of the revenue, include product engineering and life-cycle management services relating to telecom equipment used in areas such as transmission, switching, access and operational support systems (OSS), in both legacy and next generation networks (NGNs).
In the last four years, the company has grown at 13 per cent compound annual growth rate (CAGR). Sales have increased from Rs 304 crore in FY05 to Rs 496 crore in FY09. Most of its growth is funded by company’s internal accruals. Even the EBIDTA margins have grown by 64 per cent CAGR. This has helped the company to improve its EBIDTA margin from three per cent in FY05 to 13 per cent in FY09. When we speak of its PAT it has increased by 62 per cent CAGR in the same time period and for FY09 it has posted PAT of Rs 45.1 crore. For H1FY10, the company has already posted profit of Rs 41.5 crore (prior to one-time expenses) against sales of Rs 318 crore.
When we analyze the revenues of the company by regions, the company gets most of its revenues from the USA, followed by Europe and India. For H1FY10, 88 per cent of its revenues were earned from the US, whereas Europe contributed seven per cent and India four per cent. The company is focused on the telecom, media, technology, manufacturing and healthcare industries. Major chunk of the revenues is generated from telecom and media. For H1FY10, telecom and media contributed 54 per cent of the revenues, whereas healthcare contributed 20 per cent of the total revenues. Manufacturing and retail are the other sectors which contributed nine per cent and five per cent, respectively. Over the last decade, telecom has been one of the largest verticals for several top Indian IT firms. Revenues from hi-tech/telecom vertical account for roughly 18-20 per cent of the overall export revenue of Indian IT industry, second only to BFSI domain.
Use of IPO Proceeds
The total amount that the company will be raising through the proposed IPO will be used for capital expenditure, acquisition and repayment of debt along with general corporate purpose expenses.
Currently, company has four development centers located in India, including company’s wholly-owned subsidiaries. With the IPO proceeds, the company proposes to expand its IT infrastructure at their existing campus in Bengaluru and also proposes to set up facilities at the SEZ in Gurgaon in National Capital Region (NCR). As part of the expansion plan, the company intends to upgrade/augment its IT infrastructure facilities in its existing premises at campus located in Whitefield, Bengaluru.
For any organization, inorganic growth remains one of the strategies to get into the next orbit of growth. Even ICSL growth strategy involves gaining new clients and expanding service offerings, both organically and through strategic acquisitions. The company continues to look for attractive strategic opportunities that will further enhance its portfolio of offerings or facilitate its entry into new markets. Towards this end, the company proposes to target companies in India or overseas that have expertise in the telecom domain or specific product-related “IP” that could be enhanced leveraging its telecom domain competency. Executing this strategy, the company acquired Comnet International Co. in August 2007 to expand its service offerings into OEM and ISV space, thereby, increasing the breadth of its offerings across the telecom domain ranging from telecom carriers and ISVs to OEMs.
Repayment of Debt
In order to strengthen its balance sheet, the company intends to use part of the IPO proceeds to repay its debt. ICSL had taken a loan of 3.31 mn Swiss francs in year 2007 for the purpose of acquisition of business overseas. The loan was for a period of three years. The company has a track record of paying the installments on a regular basis. One of the objects of the fresh issue is repayment of the aforesaid loan. The company proposes to prepay the balance amount out of the proceeds of the fresh issue. The present outstanding balance of the loan is Rs 19.50 million.
The valuations of the company cannot be ascertained right now, as we do not have the price band, which determines the actual valuation and attractiveness of the IPO. Still looking at the company’s growth rate, one can look for an exposure. Only concern is the company’s dependence on the US, which we feel will pass away with the recovery in the US.