Vishal Information Technology Ltd (VITL) will launch its initial public offering on July 21, hoping to raise between Rs 39-42 crore for its immediate and future expansion plans.

VITL, incorporated on May 2, 2004, was one of the early entrants into the ITeS/BPO services field. While the company does not have a voice call centre yet, it gained expertise in areas of data digitisation, e-publishing and digital libraries.

Its pet product ?Digital Library for Visually Impaired and Blind? is expected to make a major impact in the UK market.

Offering 27.9 lakh shares in the market at a price band of Rs140-150, VITL is another IT company enjoying the huge growth the ITeS-BPO sector has seen over the last few years.

Being a relatively small company, its move into the market at this time is ambitious to say the least. However, if it hopes to take its steady growth to a new level, this infusion of capital is critical.

With experienced promoters and management, and having the backing of IDBI, the company seems to have strong fundamentals. Whether it has the potential to be a runaway success story is yet to be seen.

Industry & business overview

The Indian IT-enabled business services industry has been steadily growing over the last few years. With India being a preferred IT hub for companies around the globe, the industry has witnessed a growth of over 32% in the last fiscal year.

The IT & ITES industry has achieved a turnover of $37.4 billion in FY07. The ITeS-BPO sector contributed $8.4 billion to the total $31.4 billion software and services exports to the US.

The core areas of revenue generation for the company are projects and services and e-publishing. Projects and services include data digitalisation with prospective clients from NGO?s, government organisations, universities, courts and hospitals. The main objectives of VITL is to manufacture, assemble, design, import, export, repair, buy, sell and deal in electronic systems, computers, telecommunication systems, monitoring systems, testing systems, data processing systems and information technology systems, among others.

The main risks that VITL seems to face is that 56% of income comes from 3 clients. Like all new growing companies, it had a negative cash outflow for the last few years and due to the international nature of its business, it is affected by currency fluctuations and regulatory risks. Also, IT tax exemptions, if withdrawn, would dent the company?s finances.

Issue objectives

VITL has entered the market hoping to raise money for further expansion of business. The primary areas where the money will be channelled towards are financing the cost of expansion of facilities in Chennai, financing the cost of setting up a quality assurance centre and marketing office in Mumbai and the opening of subsidiaries in the United States and United Kingdom.

While these goals appear laudable and suggest major expansion plans in the pipeline, one should be aware of the ground realities made towards these goals. While Rs 16.7 crore has been set aside for facilities in Chennai and Mumbai, no property contracts have been entered into nor have there been any locations for the premises identified.

Due to high rates, the company is raising money to finance these properties. Similarly, as far as setting up subsidiaries in the US and UK is concerned, currently no potential properties have been identified so far.

However, once the company raises money, it plans to start the procedure required for setting up these subsidiaries. Hence, while its plans seem promising, the ground work has not even reached its nascent stages.

Numbers talk

The company?s finances are that of a typical growing company. One heartening fact is that its growth story so far has been steady and gradual. Even though no jumps in profitability are seen, the company appears to have good fundamentals.

However, this may not be the best time for the company to enter the market.

The post-issue EPS based on last fiscal?s profit is Rs 10.49 with a PE of 13.34(x) and 14.29(y) at the lower and higher priceband respectively. This is higher than the average industry PE of 11.80. However, if the current year?s profits rise, then it should fall to the same level. With the income of the company growing 4.8 times in the last 5 years and net worth by 8.5, it is maintaining a healthy growth rate. The FY 07-08 profits were Rs 11.2 crore. Though not so high, it is considerably better than other companies who have entered the market to raise similar amounts over the last few months.