Exquisite Exports

Score: Below Average

Reshma Krishnan

Given the poor record in profitability, the intense competition likely in the proposed line of business, and high risks associated with a start-up IT entity, investors can stay clear of Exquisite Exports' IPO.

The company manufactures finished leather, leather garments and leather products and owns a tannery with a production capacity of 36 lakh square feet of leather. It is now diversifying into the computer and IT arena, where it feels there is growth potential. It intends continuing leather exports.

The initial public offer for 15.9 lakh equity shares, will result in a cash flow of Rs. 1.59 crores. The company cites the funding of a medical transcription centre and development of an e-commerce portal for leather as the issue's objectives. The company's scale of operations (CBay), which is to provide technical know-how, is itself low in terms of revenues, and this raises doubts over the level of support.

Meanwhile, the company's financials in terms of profitability do not seem attractive. Though sales grew by 33 per cent from Rs. 3.86 crores in 1998-99 to Rs. 5.16 crores in the nine-months ending January 2000, the profits from those sales are at very low levels. Operating profit margins fell from 9.3 per cent to 7.8 per cent.

In the last three years, the leather business' focus has shifted from selling leather domestically to exports. As far as the future is concerned, the company believes it has a distinct advantage in the medical transcription business. It also proposes to set up a portal and a training centre for medical transcriptionists.

The overall business profile suggests the company may face intense competition and this could put pressure on profitability. As such, the projected profits seem optimistic. The risks associated with a company just entering the IT arena are high and retail investors could stay clear of the offer. The IPO closes for subscription on July 11 and the issue's lead managers are Ashika Credit Capital Limited.