What's more, the monthly volumes recorded on NSE since December 1998 have been much higher than SIL's outstanding equity. In fact, in the current month alone, the scrip has so far logged a cumulative trade of seven crore shares or nearly four times the entire floating stock available. On BSE, though SIL's price line followed a similar pattern to the one witnessed on NSE, the volumes have been decisivelylower.

The latest upsurge in SIL's market price comes in the wake of reports of the company entering into a strategic alliance with the US-based Platinum Technology Inc (PTI), the world's seventh largest independent software vendor. Though the stock market was rife with rumours that PTI would pick up a substantial stake in SIL's holding company, the US-based Subra Holdings Inc, company sources reportedly maintained that its alliance with PTI would be purely a technological tie-up.

Nonetheless, stock market operators, seemingly obsessed with the flavour of the season, infotech stocks, ignored SIL's clarification and were busy pushing up the stock to newer heights. Also, SIL's impressive third quarter results of the current fiscal when it posted a net profit of Rs 13.99 crore on a total income of Rs 30.72 crore aided the positive sentiments in no small measure.

Promoted in 1992 by the US-based Ravi Subramanian, the main promoter and four other NRIs along withthe Mumbai-based Narendra Kale, SIL embarked on a project to set up a 100 per cent export oriented unit (EOU) for software export, besides a computer education and training (CET) and an office automation and electronic products (OAEP) division.

The project, appraised by Indian Bank, Mumbai to cost Rs 30.96 crore, was substantially equity-financed, with term loans accounting for a mere Rs 0.96 crore. Of the Rs 30 crore equity component, the promoters took up a Rs 12 crore stake while for the balance, SIL made a public issue of 1.80 crore shares at par in September 1992.

The public offer received an encouraging response from Indian residents resulting in an oversubscription of 15.88 times. The NRI reservation quota of 36 lakh shares too was taken up in full. SIL retained 15 per cent oversubscription, taking the post-issue equity to Rs 34.50 crore.

In fiscal 1995, SIL privately-placed with a domestic company a further 34.50 lakh shares at a price of Rs 41 pershare, to fund the setting up of additional software development facilities at Mumbai and Chennai. The private placement took SIL's paid-up equity to Rs 37.95 crore.

At the time of its 1992 issue, while SIL's software division was already functional, the company promised that the other two divisions would become operational by November 1992. In terms of financial performance, SIL projected the total income to gradually rise from Rs 54.41 crore in fiscal 1993 to Rs 150.83 crore in fiscal 1997. Of the total income, substantial contributions were assumed from software export and OAEP divisions. As for the bottomline, it was expected to improve from Rs 4.87 crore in fiscal 1993 to Rs 31.56 crore in fiscal 1997.

In terms of actual performance, SIL failed to achieve both the total income and net profit in all the five fiscals mainly due to the OAEP division failing to take off. Just the same, the company's software export division acquitted itself creditably. SIL consolidated its presence inAmerica, propelled by the launch of innovative software products. In high-tech training, SIL tied up with National Centre for Software Technology (NCST) and C-DAC, the country's premier computing bodies, to offer superior quality instruction.

Notwithstanding the strong export performance, SIL's overall financial performance continued to be average till mid-1997. In fact, the scrip was languishing in the region of Rs 15 to Rs 20 on the bourses, thanks largely to the lackadaisical show. During 1997, Subra Holdings Inc (SHI), a company incorporated in the state of Delaware, USA and belonging to the promoters of SIL, acquired 21.88 per cent of SIL's equity by a private agreement with certain principal promoter-shareholders of the company.

Subsequently, SHI, in compliance with statutory regulations, made an open offer to acquire a further 29.12 per cent equity at Rs 21 a share. But the stock market responded by pegging the share price at a premium to the open offer price. This forcedSHI to revise the offer price to Rs 30 per share. On completion of the open offer, SHI became the holding company of SIL with a 51 per cent shareholding.

SIL's promoters celebrated its conversion as SHI's subsidiary in a strange, but rather unique manner! In March 1998, SIL allotted 220.50 lakh warrants to SHI at a price of Rs 22 per share, that is much less than the open offer price, with an option to convert the warrants into equity shares on a one-to-one basis within 18 months from the allotment of warrants. On eventual conversion of the warrants, SIL's equity would bloat to a very high Rs 60 crore, of which the promoters would hold a 69 per cent stake.

On the positive side, over the years, SIL's export performance has been impressive with the company notching up 94 per cent of the revenues from the segment in fiscal 1998. Naturally, its reliance on borrowings has been rather low. Indeed, SIL might apply the proceeds of the warrant-conversion to retire eventhese loans, thereby making SIL a nil-debt company. Unlike certain lesser companies in the infotech industry, SIL's asset-creation has been impressive with the gross block and capital work in progress aggregating to Rs 105 crore at the end of fiscal 1998.

In comparison, Infosys Technologies, the benchmark for the industry, had a capital asset base of Rs 123 crore at the end of June 1998. On the flip side, however, SIL's burgeoning equity could blunt the returns to shareholders in the near term. Further, unlike Infosys, which logged an asset-turnover ratio of 2:3 in fiscal 1998, SIL's fell much short of unity. Moreover, the penchant of SIL's promoters to reward themselves at the cost of other shareholders, as demonstrated by the warrant issue, should indeed be a cause for concern for the investors.

On balance, while one can sail with the favourable wind currently, it is SIL's focus on the niche lines of business aimed at moving up the value chain, which woulddetermine the long-term perspective on the company.

(Arranged by Investar -- The Aarthik News & Research Syndicate)