Delhi-based SQL Star International is offering 29.5 lakh equity shares of Rs 10 each at a premium between Rs 40 and Rs 45 through its maiden public issue. Depending on the final issue price which is to be decided shortly, the aggregate issue amount would be between Rs 14.75 crore and Rs 16.23 crore. Of the total offer, 26 lakh equity shares are for the general public. According to the company sources, the issue will open in the third or fourth week of May.

The SQL offer is the fifth in the line of recent software IPOs. Compared to the recent infotech IPOs in terms of PE, at the upper band of Rs 55, SQL's offer is at par with that ofSonata, but underpriced to that of KPIT. With an earnings per share of Rs 4.59 (fiscal 1998), the price-earning multiple works out to 11.98. Compared to this, Sonata's IPO commanded a P/E of 12.06 and KPIT Systems' 18.33 (both were priced at Rs 90).

Even though the markets, primary as well as secondary, are upbeat on the infotech stocks, the promoters are not taking any chances with the IPO. The promoters have already approached different underwriters and are in the process of finalising the underwriting agreements.

The main business of the company includes computer education and software development and consulting services including ERP consultation. SQL has strategic business alliance/partnerships with infotech global majors like Oracle, IBM, Lotus and Microsoft for imparting education to students in the country on their products. It also offers the full range of Oracle's products for databases to ERP applications and has the authorised training centre status for the US major.

Among its present andpast Indian clients whom it has provided or currently providing ERP consultations, SQL boasts of companies like Hindustan Liver, Maruti Udyog and Smithkline Beecham.

The main objective of the present issue is to part finance SQL's expansion plans pegged at Rs 25.26 crore. The company is setting up an offshore development facility and ERP consulting facilities at Hyderabad's Hi-tech City. Also the company is planning a subsidiary in Europe and full fledged development centres for its existing subsidiaries in the US and Singapore. Being set up at a cost of Rs 19.11 crore, all the subsidiaries and the development centres are projected to be fully operational by September 2000.

Once these start generating revenues for the company, the future shareholders should see some major appreciation in their holdings in SQL.This apart, SQL is also spending Rs 5.25 crore to set up education centres at different parts of India and in Singapore. It will also spend Rs 1.50 crore for upgradation of its equipment at theexisting education centres.While a maximum of Rs 16.22 crore can be garnered through the IPO route, Rs 7 crore is coming through the internal accrual route and Rs 2 crore as term loans from SBI.

During the 9-month period ended December 1998, SQL earned a net profit of Rs 2.56 crore from a total income of Rs 19.26 crore. While the net profit during the nine-month period to December 1998 went up by around 82 per cent (Rs 1.41 crore - fiscal 1998), total income had grown marginally from Rs 18.75 crore during the previous fiscal.

For the full year to December 1999, the company projects to earn a net profit of Rs 4.58 crore from a total income of Rs 37.07 crore. During the same period, SQL expects its turnover from exports to grow 42 per cent and that from education by 52 per cent.

SQL Star is promoted by technocrats with experience in the infotech sector. The current promoters' holding of 43 per cent would come down to around 37 per cent level, post-issue.

Currently, the two venture capitalists, ICICIVentures and RCTC, have equity participation in the company. The two funds jointly hold 48.75 per cent stake in SQL. Post-offer, this will, however, come down to around 25 per cent. The employees, through SQL ESOP Trust, hold 5.37 per cent of the equity. The employees stock option plan of the company covers around 95 per cent of the SQL's total workforce.

ICICI Securities and Enam Financial Consultants are the two lead managers to the issue.

-- Partha Pratim Sinha