Recently, three companies - Cadila Healthcare, Elder Pharmaceuticals and Cinevista Communications - have been listed on the bourses at a steep discount to their IPO prices. Several companies, who have lined up IPOs and those who are in the process of listing, are expected to be badly hit. However, companies with serious business plans and fairly priced issues may not be punished by the market. Akshay Software is charging a premium of Rs 70 and investment in this IPO may yield some returns, but the risk is also high.

Akshay Software has been in the software business for over a decade. However, the company is yet to establish its credentials in this field. The company is still operating on a turnover of only Rs 4.69 crore. Established in June, 1987 as Akshay Business Services Pvt Ltd, the company changed its name to Akshay Software Technologies Ltd in October, 1995. After operating as a software solution provider at the domestic level, Akshay had ventured into international software development market in 1993. The company had set up a wholly-owned subsidiary - Akshay Software International Inc. Now, almost 75 per cent of its turnover comes from exports. But the catch is that all software exports sales since 1996-97 have been to the wholly owned US subsidiary. So the problem of transfer pricing cannot be ruled out. Since the entire exports are to the US subsidiary, the company's performance largely depends on its US arm's performance.

Of the issue proceeds, the company has earmarked Rs 3.17 crore as loan to its subsidiary. Interestingly, this loan carries an interest of 15 per cent. The offer document says that: ``The wholly-owned subsidiary is totally dependent on the parent company for any financial assistance either by way of debt or equity. Hence, parent company proposes to extend a loan of Rs 3.17 crore with an interest 15 per cent to be repaid in five years.'' But one fails to understand that why should the US subsidiary pay an interest to Akshay Software when it is a fully owned arm of the Indian company? In fact, the company received the RBI nod for extending loan to its subsidiary with the condition of repatriation of the entire amount by way of dividend, royalty, technical know how fees etc. within a period of five years.

Akshay's two development centres in Mumbai and Chennai house more than 100 employees. By 2002, Akshay expects to increase its employee strength to 500. Besides its trading activity, Akshay also provides software services packaged flexibly to suit specific user requirements. These services are rendered in two basic modes: time and material (T&M) and fixed price (FP) contract. The company is focussing on internet/intranet applications, e-commerce, client/server and RDBMS, ERP practices and customer relations management (CRM). The company has also developed a software solution (Prism) to automate operations in the HRD function of organisations. Prism is positioned as a full-function HRD package.