The CSEL scrip, offered to public at a premium of Rs 10 in May, listed on the Hyderabad Stock Exchange (HSE) on July 27. After logging a muhurat quote of Rs 23.05, the scrip briefly touched its high of Rs 30.70, before ending the opening day at Rs 28.45.

The counter witnessed a volume of 25,209 shares in 193 trades. During subsequent trading days, while the volume remained steady, the price line gradually hit a downward trend. The stock currently trades at Rs 20.40 a share. On Bangalore Stock Exchange (BgSE), though the scrip was listed on July 28, trading has not commenced as yet.

The company's basis of allotment reveals that CSEL's Rs 251.80 lakh IPO attracted just over 2,000 applications. The overall response for the offer was 1.26 times. Though about 95 per cent of the applications had come from retail investors, it was still not good enough. The portion of the IPO reserved for the retail investors went undersubscribed. The shortfall was made good by a handful of large applications. In that sense, one can argue that the issue was `made-up'. This is in stark contrast to the heady days, barely six months ago, when even a below-average Sibar Software netted over 2.5 lakh applications for its at-par IPO resulting in an oversubscription of 253 times!

Waning investor sentiment apart, CSEL too did not enhance its image in the minds of discerning investors and analysts. As if eagerly joining the recent pack of its IT-peers who had mastered the art of making hay while the sun shone, CSEL too had allotted a sizeable portion of the pre-IPO equity to `business associates' and mutual funds/FIIs in the first quarter of calendar 2000.

Thus, of the post-IPO equity base which was pegged at Rs 5 crore, the public was offered only about 25 per cent of the equity. Such quick-fix standard prescriptions meant to choke the floating stock and artificially inflate the enterprise value, can no longer work in the market place even in the short run! On the contrary, having large edgy investors could prove to be counter-productive to such scrips. And, CSEL may not be any exception. Here, the `re-rating' of the Indian IT industry, typified by the sharp drop in the share prices of the likes of Infosys and Satyam, should be an eye-opener.

Incorporated in 1994 as Computer Synergetics (P) Ltd, the company changed its name to the present one in 1998. Promoted by the trio of Ravi Vishnu, Sunder Raj Nyayapathi and Vikram Reddy Doodipala - all of whom have technical education and experience, the company's operations are in three major areas - software development, software training and data management.

In its initial years, CSEL's top line consisted almost entirely of revenue from data processing/management activities, mainly from projects undertaken for various wings of AP government. However, in the last two accounting periods, training has replaced data management as the major source of income, with software development activities bringing up the rear. So much so that in calendar 1999, CSEL derived about two-thirds of its revenues from training activities alone.

At present, CSEL claims to offer on-site and offshore corporate training to various MNCs and Indian IT majors such as Wipro and Satyam. However, the extent of contribution from such corporate training activities to CSEL's total training revenue is not known.

From a financial perspective, the wobbling top line and an equally inconsistent bottom line over the years can be construed to suggest that the company lacks a consistent business focus. The company's total income, which stood at Rs 278.10 lakh in fiscal 1996, dipped to Rs 115.48 lakh in the following fiscal before recovering to Rs 211.53 lakh in the 9-month period ended December 1998. CSEL's net profit in the corresponding periods was Rs 16.58 lakh, Rs 10.90 lakh and Rs 78.18 lakh respectively.

However, in calendar 1999, the company's top line and bottom line spurted to Rs 559.45 lakh and Rs 118.38 lakh respectively.

But, considering the almost matching increase in its current assets and loans and advances, and that too coming as they were on the eve of the IPO, not much can be read into its seemingly acceptable financial performance in calendar 1999. Significantly, the company earned Rs 82.22 lakh and spent nothing in foreign currency during 1999. An eye-catching item in CSEL's 1999 financial statement was the inclusion of `chits' for Rs 6.41 lakh as part of its loans and advances!

Post-IPO, the company has finalised its accounts for the 15-month period ended March 2000. For this period, it has reported a total income of Rs 754.59 lakh and a net profit of Rs 120.54 lakh. However, compared with 1999, the reported figures represent a growth in top line of 7.9 per cent and a decline in the profitability by 18.5 per cent.

Though CSEL's report card for the first-quarter of the current fiscal (net profit of Rs 87.15 lakh) signify an improvement, given its inconsistent track record, it is difficult to assert that the company would achieve its projected net profit of Rs 161.78 lakh on a total revenue of Rs 908.29 lakh for the whole of the current fiscal.

Notwithstanding these factors, CSEL's retail investors for a change stand on a better footing than institutional shareholders like Canbank Offshore Fund (2 lakh shares), CSFB India Securities (1.5 lakh shares) and others. The latter invested in the company in February this year when positive sentiment for the IT sector was ruling the roost. While savvy retail investors can exit the company without getting noticed, their larger counterparts can only become more edgy as they bide their time!

(Arranged by Investar - The Aarthik News & Research Group) [E-mail feedback to:investar@bol.net.in (or) fernando@bol.net.in] .rm90