For want of business, their branch offices have been empowered to procure clients of their own choice. As such, the head office does not know what the branch does, and the head office absolves itself from any omission or commission committed by its branch. What's more, the head office doesn't stock even a copy of the offer document of the IPO handled by the its branch! Want some proof? Take the case of Visu Cybertech Ltd (VCL).

The recent public of the Hyderabad-based VCL was lead-managed by Karvy Investor Services and SBI Capital Markets. Believe it or not, VCL's public offer document was available in the market. The first lead manager, the Hyderabad-based Karvy, chose not to respond to the requisition e-mailed to them. Though Karvy has its merchant banking office in Mumbai, it is not reachable over the phone! The Mumbai head office of the second lead manager, SBI Cap, expresses its helplessness, as the issue was handled by their Hyderabad office! If the head office of a leading merchant banker has not even bothered to keep a copy of the offer document to which it had lent its name, imagine the commitment of the merchant banker to the public issue.

Notwithstanding the merchant bankers' indifferent attitude and the non-availability of the offer document, VCL's public issue of 15.7 lakh shares at par was oversubscribed more than 97 times! Whereas the small investor category (up to 1000 shares) was subscribed to the extent of 66 times, the large investors' portion was subscribed as many as 125 times! The company received as many as 82992 applications for 1278.2 lakh shares of which only 8352 got some allotment. While the public allottees got an average of about 155 shares, APIDC which sanctioned a term loan of Rs 35 lakh towards VCL's Rs 4.89 crore project, got a firm allotment of 2.5 lakh shares, which straight away fetched to the lender a capital gain of over Rs 1.75 crore on listing!

Besides the two stock exchanges at Hyderabad and Bangalore where VCL was promised to be listed, the scrip is now also traded on the Ahmedabad and Chennai exchanges. While Bangalore offered the highest closing price at Rs 90 on March 9, Ahmedabad closed at Rs 78.75 on that day. A day earlier, the scrip had even scaled a peak of Rs 108.45 on both Bangalore and Hyderabad exchanges. How would one justify a premium of nearly 1000 per cent for VCL in such a short period of going public?

The issue `risk factor' itself reveals that the promoters did not have experience in the proposed line of activity. The promoters were earlier acting as "facilitators" for students aspiring higher studies in the Western countries. After 15 long years of existence, this business fetched a turnover of 1.07 million US dollars and a profit of just US$ 35122 in 1998.

VCL was incorporated in 1997 as Chavva Infotech Ltd, the same name in which the promoters have one company in the US which is engaged in the same business as VCL's. What's more, the project land valued at Rs 56 lakh has been purchased from the wife of one of the promoters! The promoters claim to contribute nearly 64 per cent of the equity (Rs 3.23 crore). What's the promoters' financial background? The risk factor discloses that there was a "search and seizure" conducted by the income tax department in 1997 on the major company of the promoters, and the IT department had alleged concealment of income and operation of benami accounts! Should one need more to assess where would be VCL once the present market honeymoon with infotech industry gets over?

Another Hyderabad-based company, Tyche Peripheral Systems Ltd (TPSL), which also offered public shares at par in January, has been listed recently at a hefty premium. TPSL's issue of 22.15 lakh shares was oversubscribed by 52 times by 68721 applicants of which 12506 got allotment. Like VCL, TPSL too opened its account on the Hyderabad stock exchange at above Rs 80. But, unlike VCL, TPSL could not sustain the tempo long. Currently, it placed around Rs 68 on all three exchanges at Hyderabad, Bangalore and Chennai.

TPSL is engaged in the manufacture of electronic cash registers, currency counting machines and point of sale systems. It reportedly has a marketing tie-up with Samsung and Siemens Nixdorf for marketing their products. In eight years of its existence, TPSL has reached a turnover of over Rs 13 crore. But the bottomline is still pathetic at Rs 30 lakh.

The company is now enhancing its capital base to Rs 7.26 crore from Rs 2.27 crore in 1998-99 and proposes to spend Rs 2.24 crore on machin ery and liquidate loans worth Rs 2 crore. Though the infusion of additional equity should enhance the company's profitability in the coming years, the projection of Rs 29 crore turnover and Rs 1.73 crore net profit for the current fiscal appears to be too rosy to achieve. An interesting aspect of TPSL is, though the stake of the present promoter group, who took over the company only last September, is put at around 70 per cent, the core promoters' stake is not even a half of this! The majority of the promoters' equity was actually held by "friends and associates" who may not have the same commitment towards the company as the promoters. This is, perhaps, explained by the selling pressure that the scrip is encountering with since its listing.

(Arranged by Investar - The Aarthik News & Research Group) [E-mail feedback to investar@bol.net.in]