It may be recalled that the Mumbai Film City-based ADL, whose genesis dates back to over two decades, hit the Indian capital market in December with an equity offer priced at Rs 120 for a Rs 5 paid-up share. To its credit, ADL got the highest retail response (around 7,000 applications) in recent times, though the demand from these small investors aggregated to less than a half of the issue (44 lakh shares). The company somehow managed to get the issue fully subscribed, with just three applicants alone picking up 14.14 lakh (32%) shares.

The promoters of ADL, who are already popular in the film industry circles, used the first available opportunity to convey the message that they would care for the investors. ADL allotted the shares within 13 days after the issue, and 10 days later the stock was also listed on the BSE. What's more, post-issue, the company has fared better than expected.

For the nine months upto December 2000, ADL has posted a turnover of Rs 35.24 crore and a pre-tax profit of Rs 12.53 crore as compared to Rs 36.83 crore and Rs 8.48 crore respectively in the previous full year. Since the company is now hopeful of completing the Rs 50 crore plus IMAX project in the current fiscal, it can save tax and post an EPS of more than Rs 6 for fiscal 2001. Though this may justify the offer price of Rs 120, the immediate prospects of the stock largely depend on the timely completion of the project and the early clearance of the film industry's name from the current controversy.

Strange action
Though listed since January 9, the fully paid-up shares of the Hyderabad-based V&K Softech Ltd (VSL) are hardly traded on its regional exchange (HSE). But, on the far away Calcutta Stock Exchange (CSE) and the BSE, the stock is roaring with a capital appreciation of nearly 150 per cent over the offer price (Rs 10). Interestingly, VSL's partly (Rs 5) paid-up shares are priced only around Rs 6 on the HSE! It is indeed a mystery that while the `local people' are interested in only the partly paid-up shares, the `outsiders' are ready to pay more than twice the price locals are willing to shell out! VSL's super action on the BSE has already caught the attention of the authorities, who have imposed a special margin of 25 per cent with effect from January 18.

On record, VSL's Rs 3.75 cr par IPO was claimed to have been marginally oversubscribed. But, a close scrutiny of its `basis of allotment' reveals that the 1,300 retail investors who participated in the IPO subscribed to only 16.4 per cent of the issue. As against this, in the larger category, just 12 applicants apparently close to the company picked up 60 per cent of the offer.

In fact, but for the one large applicant, who bid for 4 lakh shares, the total subscription would have fallen below the required level of 90 per cent! Coming to VSL's fundamentals, the one and a half year-old company is promising to join the dividend list next year (2001-02) with an EPS of Rs 2.69. However, if the promoters' post-issue stake (27.9 per cent) and their lack of worthwhile financial track record are anything to go by, one can't be optimistic about VSL's projections.

Far from convincing
Sixty-two days after its issue closing, Cyberabad's Fourth Generation Information Systems Ltd (FGISL) got its stock listed on the HSE on the eleventh of this month. Having made its market debut at a discount (Rs 8.10), the stock was hardly visible on its regional exchange even two weeks after listing. But, on the BSE, the stock has been making strides on the back of heavy volumes ever since it got listed on January 12. In fact, the abnormal activity in this counter forced BSE to impose a special margin of 25 per cent with effect from January 18. Currently, the scrip is placed at 60 per cent above the offer price (Rs 10), volume being around a lakh of shares. Who is willing to pay a hefty 60 per cent premium for this stock in Mumbai when no `local investor' seems to be interested in the stock on the regional HSE? The answer lies in the basis of allotment. Though FGISL's IPO attracted more than 3,200 retail investors, their cumulative subscription amounted to only about 37 per cent of the issue. Just 10applicants subscribed to more than 55 per cent of the issue, of which one alone pitched in 15.25 per cent! In other words, but for this one large application of 8 lakh shares, the issue would have failed to meet the required minimum subscription! Considering that FGISL took 62 days for listing, indicating that all was not well post-issue, only a few interested elements appear to be behind the artificial demand for the stock.

Fundamentally, FGISL is far from convincing. Its main promoters, who are in late 20s, don't seem to stick around with a company for long. FGISL's chairman (8 firms in less than 5 years), managing director (4 in less than 4) and another promoter director (5 in less than 2.5) have a dubious record on this count. Interestingly, the last named, Sharat Reddy, who reportedly manages the "IT enabled services business" of FGISL, had resigned from the company's managing directorship in February last year due to "personal reasons".

What's more, the first auditors of the company too resigned in the second year. No wonder, the Hyderabad Company resorted to the services of a Mumbai-based merchant banker for floating the IPO. With such credentials, what can FGSIL offer the investors in the long run?

Arranged by Investar - The Aarthik News & Research Group
(e-mail feedback to: fernando@bol.net.in (or) feedback@investaronline.com)