Melstar Information Technologies Limited - an issue analysis

Issue Opens/Closes: 17-1-2000 / 22-1-2000
Instrument: Equity
Issue Size: Rs.16.28 Crores plus Offer for sale of Rs.6.40 crores
Offer Price: Rs.72 (Premium of Rs.62 Per Share)
Listing: Bombay Stock Exchange (BSE) , National Stock Exchange (NSE)

Analysis
Incorporated in August 1986, Melstar Information Technologies Limited (MITL) acquired its present name and status in 1994, following its acquisition by the current promoters. Since 1994, the company has been engaged in the export of software to USA, Switzerland, Italy and other countries. Besides, it has also set up subsidiaries in the UK and USA.

MITL's foray into the capital market is to fund its software development divisions and also those of its subsidiaries. The fund requirement for the same has been self estimated at Rs. 15.46 crores to be entirely financed from the public issue proceeds. MITL's other plans to utilise the funds from this issue include, the setting up of new software development centres at its existing facilities in Mumbai, investing in its foreign subsidiaries, upgrading its existing hardware, software and infrastucture facilities, repaying of its loans taken from its bankers and reduction in fund based limits with banks.

On the financial front, the track record of the company appears fair. The same cannot however be said about its US' subsidiary which recorded a significant decline in bottomline during 1999. MITL and its subsidiaries boast of a fairly impressive clientele and its fairly long association with IBM enhances its credentials. Notably, other companies under the same management have been in the red since the last consecutive three years.

The promoters of the company appear to be reasonably well experienced in the computer industry although not necessarily so in the software segment. Moreover the funds raised through the current issue are to be used for the further development of its foreign subsidiaries. The post issue equity stake of the promoters will be approximately 37 % .

Conculsion
The prevalent scenario in the software industry is one of prosperity and riding the same could prove beneficial for MITL's prospects in the short to medium term. The issue price of Rs. 72 should also help in drawing the necessary funds and provide fair returns on listing. What happens thereafter will depend on the company getting its act together at the earliest.

(Garima Kumar is with Lotus Strategic Consultants, Mumbai. While due care has been taken to prepare this report, readers are advised to take specific investment advice before taking any investment decisions.)