The reasons for renewed buying interest in the DSQ Software scrip, hovering around the Rs 270-mark, are easily evident. First, the company has garnered the prestigious ISO SEI level 4 certification, which tracks the processes of software firms. NIIT, with a ISO SEI level 3 certification, is the only other player anywhere close to it in the country. This speaks volumes of the quality of product churned out by DSQ. Second, there is a possibility that one of their major international clients would pick up a stake in the company as the current cash-strapped promoters, the Dalmias, could sell out. Third, they are well equipped to utilise growth opportunities in ERP, Internet, Network management and telecom-software business. Four, the company has a comfortable order-book position of around $40 million and is, hence, geared up to fund a capex of around Rs 70-80 crore every year.

Moreover, DSQ Software has recently become an IBM Global Service partner. Despite the current recession, thecompany expects 100 per cent market growth in Japan alone. Its dedicated development centres for NEC, OKI, and NSW are faring well. Orders from General Electric's Japanese offices and from one of the top five software houses in Europe should prove to be crucial. It had also secured a major $10 million order from Ingersoll Rand and a tie-up with Sun Microsystems for Java-based applications. Further, in accordance with Sebi norms, the company has set aside 5 per cent of its equity for an employee welfare trust. This will help it retain manpower, crucial to its future operations.

The unaudited financial results for the three months ended September 30, 1998, indicate that net sales have risen by a whopping 117 per cent to Rs 52.8 crore. Increased manpower costs owing to the expansion program has eroded margins to 33 per cent from 38 per cent. Other income as a percentage of PBT has reduced 0.5 per cent from 16.3 per cent. Driven by the higher income from operations, the net profit has increased by 81.36 percent to Rs 11.68 crore. In the first half of the previous year, the company had recorded a turnover of Rs 44.10 crore, and a 59 per cent jump in net profit to Rs 11.20 crore.

Last year, DSQ sold its investments in DSQ Biotech at Rs 6.75 crore. In the past, these inter-company investments were a major embarrassment as the company had diversified into unrelated areas using funds generated from software. DSQ at present operates from two software-development centres at Chennai and has carried the concept of dedicated software development centres forward by creating centres for three major clients, namely NEC, Nippon Systemware and Nedcar. Moreover, it has executed over half a dozen Y2K solutions project for a UK-based company and a Japanese conglomerate. Analysts say all this should translate into a healthy bottomline of around Rs 45 crore for the current financial year.

GMDC:

Two interesting special resolutions were passed at GMDC's first AGM, post- listing. One was to bring about alterations inthe object clause of its memorandum of association and the other to amend its articles of association. The alteration of the memorandum was necessitated because Section 15A(2) of the Electricity (Supply) Act (ESA), 1948, provides the two specific clauses that must form part of the objects of a generating company.

According to Section 2(4A) of ESA, any company which is registered under the Companies Act, 1956, and the objects of which include the establishment, operation and maintenance of generating stations (any station for generation of electricity), is a generating company. The plain reading of the sections reveals that GMDC was a generating company and its object clause should have specifically included the two clauses required under Section 15A(2). However, this was not the case, and the company did not realise this until it was pointed out to it by the Central Electricity Authority (CEA). What is worse is that even the special resolution is badly drafted. The phrase the company has used is "clause 15Aof the Electricity (Supply) Act, 1948". Clause 15A is not a clause, but a section as is correctly pointed out in the explanatory statement.

The second resolution, which was for the amendment of the company's articles of association, became necessary to comply with the requirement of Section 15A(5) of ESA. This section requires that one of the permanent directors, having the qualifications required under the concerned section, should be appointed as whole-time director. Again, it was CEA that had to point this out to the company. The fact that the amendments were made almost a year after the conclusion of its offer for sale reflects poorly not only on the company's management, but also on the lead managers.

Another point is that during the sixteen month period ending July 1998 (the month when the audited accounts were approved), eight new directors joined and then left the board. The GMDC board it would seem is utilised as a temporary parking place for people willing to be appointed as directors by thegovernment of Gujarat. Further, the company makes ad hoc payments of provident fund dues to the appropriate authorities. In 1997-98, there was a short payment of Rs 0.37 crore, which was put right the in first quarter of 1998-99. Instances of delay in payment of provident fund dues are not unheard of, but among listed companies, shortfalls and ad hoc provident fund payments are rare. As it is the company does not enjoy a high discounting in the market and with instances such as these, its P/E is likely to fall further.

Emcee (With contributions from AG Krishnan & Urmik Chhaya)