Zen Technologies: Below Average

Score: Below Average

BL Research Bureau

ZEN Technologies is making an initial public offering to part-finance the expansion project envisaging development of two more simulators, to meet software development and operating expenses, include two prototypes of iSATS and Tacism and to set up an overseas office.

The project cost is estimated to be Rs. 6.68 crores. Of the total project cost, Rs. 3.17 crores is being contributed by the promoters, direct subscription from the IDBI of Rs. 1 crore and the public issue proceeds of Rs. 1.91 crores. It has also secured a grant from the Department of Science and Industrial Research of Rs. 0.60 crore for the project.

What the offer document says:

The activities of the company are in the field of simulators and software for application in the Defence, police and allied fields. Till date, the company has supplied 24 small arms training simulators (SATS) to various police and paramilitary organisations.

The company proposes to expand its existing activities by setting up facilities for manufacturing advanced weapons training simulators, namely, tactical engagement simulators (TacSim) and interactive small arms training simulator (iSATS) at Hyderabad.

As per the appraisal report of the IDBI, the company is the only manufacturer of its products in the domestic market. Competition, if any, exists from overseas suppliers from the US and New Zealand, who offer similar products.

A The company has an in-house R&D, recognised by the Department of Science and Industrial Research, Ministry of Science and Technology.

The company has projected turnover of Rs. 7.20 crores, Rs. 18 crores and Rs. 21.60 crores for 2000-01, 2001-02, 2002-03 respectively. Over the same period, the projected post tax earnings works out to Rs. 2.46 crores, Rs. 4.25 crores and Rs.5.25 crores respectively.

Investment prospects: Basically dealing in the product domain, this is a relatively high-risk project with reasonable demand potential. As the demand fulfillment depends on the police, paramilitary and armed forces, the financial performance may be subject to the vagaries associated with orders from police departments and the Ministry of Defence. Being in the product domain, the high risk-high reward equation applies with great force even to this offer. The project is subject to a high degree of volatility in returns.

If the demand materialises, the project has scope for offering decent returns. However, if the orders dry up, the potential for growth may be limited. In any case, this offer is likely to face competition from imports. In the past, the Ministry of Defence has sourced similar products from suppliers such as Spartanics, US, Oscamar, New Zealand and Fire Arm Training Simulator, US. In this backdrop, risk-averse investors may give this offer a go by.

Industry Class :Computer - Software

Issue Type :Equity at par

Offer price :Rs. 10 per share

Application amount :Rs. 1000

Offer size :Rs. 1.91 crores

Project Cost :Rs. 6.68 crores

Post issue equity :Rs. 7.63 crores

Offer Opens on :September 4

Offer Closes on :September 7

Promoters :Ashok Alturi and others

Lead Managers :IDBI

Listing at :Hyderabad