FI Sofex

Score: Below average

S. Vaidya Nathan

INVESTMENTS in the initial public offering of FI Sofex can be avoided as the offer seems stiffly priced at Rs. 30 per share, and the scale of operations is still small. The company's projections also appear optimistic.

FI Sofex says it plans to use the offer proceeds to expand software development facilities, strengthen the applied graphics division and upgrade existing products. The project cost is estimated at Rs. 4.99 crores. According to the offer document, the company plans to start a software division providing projects services and products, and an applied graphics division, which would provide CAD/GIS services. It has a recently floated affiliate company in the US and plans to market B_Line, a product targeted at fashion retailers.

The company had revenues of Rs. 84.92 lakhs for 1998-99 and Rs. 80.43 crores in the first nine months of 1999-2000. Post-tax earnings were Rs. 11.30 lakhs and Rs. 18.39 lakhs respectively. The company hopes to achieve revenues of Rs. 13.45 crores in 2001-2002 and earnings of Rs. 3.56 crores. It's equity base is Rs. 3.03 crores.

Prospects: Though the promoters have a background in the business, the scale of operations is small. The company would have to take on stiff competition despite the good prospects for the software sector. The competitive scene may make it difficult for FI Sofex to upscale operations, both in terms of revenues and earnings as well as moving up the value chain in the software services business.

A lot would hinge on the company's plans in the retailing product business. The projections appear to be high. The risks associated with a company just trying to achieve a reasonable scale of operations are high.

Any investment in such an IPO would be in the nature of a venture capital investment. The returns may not be commensurate with the risks. In this backdrop, investment can be avoided. The offer closes on June 9, and the lead manager is Ind Global Financial Trust.