Promoted by chartered accountant PC Pantulu and his associates, CIL has received a warm welcome on debut on the bourses this week. CIL's equity shares, 29 lakh of which were offered at par in February, were simultaneously listed on Hyderabad and Bangalore stock exchanges (HSE & BgSE) on March 30 at a premium of over 300 per cent.

On HSE, its regional exchange, the CIL scrip's maiden quote was a steep Rs 44.50 a share. After notching up an intra-day high of Rs 50, the CIL counter witnessed selling pressure, driving the price down to Rs 41.65 a piece at close. On the opening day, 115,700 shares changed hands in 373 trades.

On BgSE, the scripdid even better, opening higher at Rs 48.60 before sliding back to end the day at Rs 43.35 a piece. But on BgSE, the volumes were markedly lower at 65,800 shares in 235 trades.

On the following day, despite a drop in volume to 27,100 shares in 100 trades on HSE, CIL edged up to end the day at Rs 44.95. On BgSE too, the scrip gained Rs 3.50 during the day to close at Rs 46.85. The market debut of CIL, closely following Sonata Software Ltd (SSL), Shri MM Softek Ltd (SMSL) and KPIT Systems Ltd (KPIT), marks the fourth consecutive success in a row of infotech offerings in 1999.

All the four scrips are presently traded on the stock exchanges at several times their respective offer prices. Another interesting coincidence is that the trading has commenced in all the four scrips within a short time frame ranging between 29 days (KPIT) and 48 days (CIL) from closing the issue.

Obviously, nobody wants to miss the strike when the iron is hot. The issuers are keen to complete the listing formalities in doublequick time. The basis of allotment of CIL reveals that the issue was oversubscribed by about 17 times. As in KPIT, its immediate predecessor, CIL too attracted a greater response from large investors. As against 10.25 lakh shares earmarked for those applying for 1000 shares or less, CIL received bids for 159.91 lakh shares from 28,667 applicants. At this stage itself, the entire public offer was oversubscribed by over 7 times. As against an equal quantity meant for the bulk investors, CIL received 2,945 applications for 211.84 lakh shares.

In terms of allotment, 12,812 of the 31,612 applicants have succeeded in their bids. Still, over 85 per cent of the allottees have had to be content with only a minimal allotment of 100 shares each. However, the-thousand-odd bulk applicants have benefited from the sheer size of their bids, clocking an average allotment of about 7,000 shares per application.

Interestingly, in the employees' category, just 38 applicants have won a cumulative allotment of one lakh sharesat a very high average of about 2,600 shares per head. Clearly, either the company has been generous to its employees or some vested interests have cornered the quota meant for them. Unlike one of its predecessors, SMSL, whose public offer failed to attract any institutional interest, the CIL offer had firm allotments of 7.50 lakh shares in favour of two FIIs, TAIB Bank EC and CS First Boston. Besides, Narbheram Harakchand, one of the broking houses in Mumbai which is aggressively stalking infotech stocks, is known to hold at least 6.50 lakh shares, or over 8 per cent in CIL's post-issue equity of Rs 8.19 crore.

Broking houses taking such huge positions suggests a possibility of the CIL scrip being targeted by punters for some quick market gains while the sentiments are bullish. More so when the financial track record of CIL inspires very little long term confidence in the scrip. And the quality of its management cannot be termed as time-tested.

Incorporated in May 1994 as Cybermate Corporate ServicesLtd, the name of the company was changed to CIL in 1996. CIL's financial track record spans just three completed years ended March 1998. For fiscal 1998, CIL netted a profit of just Rs 14.12 lakh on a turnover of Rs 162.42 lakh. For an IT company, the overseas income during the year was a meagre Rs 6.80 lakh. For the first eight months of the current fiscal, the company has notched up a turnover of Rs 207.14 lakh, on which it has earned a net profit of Rs 31.39 lakh. CIL's net profit in the first eight months of the current fiscal, when annualised, translates into a post-issue EPS of just 57 paise! CIL's market price discounts the above EPS over 70 times, which is absurd, to say the least.

Nowadays, such absurdity in price appears to be a common phenomenon for IT stocks. The prices of most IT stocks cannot be justified unless one foolishly discounts the company's turnover rather than its EPS! For instance, CIL's market capitalisation of Rs 33 cr is about 12 times its annualised turnover of Rs 3.11 cr forthe current fiscal. On this criteria, CIL is placed alongside its more illustrious peers in the industry like Satyam Computers and Infosys Technologies!

The surrealism in infotech pricing becomes more clear if we compare the valuation to one of the persistent performers with strong fundamentals, say, for example, the multinational, Hindustan Lever Ltd (HLL).

The present market capitalisation of HLL at about Rs 50,000 crore is just over five times its 1998 turnover. Does this mean that the current crop of IT companies, most of which have a short business horizon of three years on an average, are better than even the long-haul HLL? The obvious answer to this question ought to awaken small investors from blindly enlarging their commitments on IT stocks. Otherwise, when the IT bubble bursts, they will have no sympathisers left.

Arranged by Investar -- The Aarthik News & Research Syndicate