An investor would wonder how the company justifies such a high offer PE. Net Axis seems to believe that on virtue of it being in the area of information technology, it deserves a premium of Rs 10. The section `basis for offer price' in the prospectus highlights the fact that Net Axis is in the area of software training, consulting and software development (providing networking technologies mainly in e-mail servers, messaging, internet services, remote servers and bulk data transmission). Also, under `quantitative factors', the company has highlighted earnings for the past five years, which have been less than 50 paise for all these years.

The company has not even given the full-year profitability figures for fiscal 2000. According to the unaudited results for the 11-month period ended February, 2000, the company recorded a net profit of Rs 6.86 lakh on gross income of Rs 1.48 crore. On an equity base of Rs 2.89 crore, the annaulised EPS works out to just 24 paise. This discounts the offer price of Rs 20 by a multiple of 76.92.

According to the company's estimates, it will end up the current financial year with a net profit of Rs 32 lakh on income of Rs 4 crore. The projected EPS for fiscal 2001 is just 40 paise. Even this discounts the offer price by a multiple of as high as 50.

The company is operating at the lower end of the software market. Hence, it is operating at a very low margin. The profitability projections are based on an net profit margin (NPM) of 8 per cent and for fiscal 2000, the figure was just 4.6 per cent. Post-issue, Net Axis will have an expanded equity base of Rs 8 crore. It will be a difficult task for the company to service this equity base. The company neither has any big orders nor has any technology partnership.

The company has chalked out a Rs 10.22-crore project for setting up a software development facility, developing and building web centric solutions and provide funds for the development of e-commerce and B2B solutions.Of the project cost, Rs 2.4 crore is going towards setting up an office, Rs 3.5 crore for software and software development facility, Rs 2.19 crore for hardware, Rs 50 lakh for furniture and Rs 86 lakh for meeting working capital requirements.

Established in 1995, Net Axis had started software development in 1997 only by entering into networking activities. The company is also involved in internet applications and proliferation of e-commerce, sales automation and call centres. At present, the company is doing data conversion for Caterpillar Inc, US. Also, it has orders worth Rs 50 lakh from Satyam Computer Services and Maxwell Info Solutions for data conversion.

Net Axis is offering 35 lakh shares of Rs 10 each at a premium of 10, aggregating Rs 7 crore. The IPO is lead-managed by Doogar & Associates and the shares will be listed at the stock exchanges of Chennai, Hyderabad and Bangalore.

The IPO opens for subscription on August 7 and closes on August 11. The company is demanding Rs 5 on application and Rs 15 on allotment.