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	IT & T Limited

Issue Summary

Type
Equity

Size
Rs 317 m

Price
Rs 81

Face value
Rs 5 per share

Issue Opens
19th October 2000

Issue Closes
24th October 2000

Shares on offer
3.9 m

Min. subscription
100 shares

Listing
Mumbai, National and Delhi Stock Exchanges

Lead Managers
JM Morgan Stanley

Promoters
Mr. R. Chand, Mr. Karan Puri and Mr. Hemant Kohli

Promoters post
issue holding
75%

Background

Business

IT&T incorporated in 1990 was engaged in third party maintenance. In initial years, the company was instrumental in managing business on contract basis for several large IT companies like DCM Data products, ICIM and Motorola. In 1996, IT&T announced a wider set of IT services, termed as facilities management services to various clients including Coca-Cola, Castrol and Ranbaxy laboratories. The services offered were in the areas of computer product launches, training for IT sales and technical staff and marketing channel development.
However, the company is migrating into the Internet world based on the conventional brick and mortar model. IT & T has a website called smartsourceit.com, which allows its clients to order their hardware requirements, which in turn contacts IBM, Compaq and 3Com with whom the company has contractual agreements. The company has 70 help desks servicing various clients in different parts of the country, to service client requirements.
eTransitionIT
IT&T's e-transition group of consultants and developers focuses on enabling customers to exploit the potential of Internet by offering web enabling software development services that include e-business application development. It has designed two software development services for telecom account management and travel requisition and expense package. The company has licensed one of its product to a Singapore company, for which its receives license fees. Revenues from this business for quarter ending June 2000 are Rs 45 compared to Rs 30 m for FY00.

Sales mix

(Rs m) 1QFY01 % of total
revenue FY00 % of total
revenue

eTransition IT 45 50% 30.5 15%

Netmanage IT 12 13% 47 23%

Smartsource IT 32 36% 117 57%

Other income 1 1% 12 6%

Total 90 100% 206 100%

NetmanageIT
This model provides technical support via Internet for its clients. This business line leverages IT&T's service capabilities into the web based technical support centre market of overseas customers and portals. This gets high dollar revenues with only Indian costs and overheads. IT&T is further extending itself into the high value add segment of E-CRM management. Revenues from this business are Rs 12 m and Rs 47 m for June 2000 and FY00 respectively.
NurtureIT
Here, IT&T proposes to provide technical, managerial and financial support to business as well as start-ups. It is the company's business modeling, e-modeling and incubation facility and is involved in the evaluation of Internet strategies for clients. IT&T has already incubated D Tech, which is launching a travel portal. It has planned to incubate atleast 30 projects in the next five years.
The main objectives of the issue are

To raise funds for investment in new emerging Internet technologies and web enabled services
To raise funds for e-modeling and incubation of Internet related services
To meet the expenses of the issue
To list equity shares in stock exchanges to enable the company to impart liquidity to the ESOP programme.

Promoters

Mr. Rohitasava Chand is the Executive Chairman of the company with more than 30 years of experience in the IT industry. Mr. Chand has a B. Tech. from IIT Delhi and an MBA. Mr. Chand created IIS Infotech, of which he was the Executive Chairman. He has partnered in the founding of Infinity - India's first venture capital fund.
Mr. Karan Puri, aged 36, is the Managing Director of IT&T with more than 15 years of experience in the IT industry. He is the marketing strategist and has been instrumental in creation of IT&T's brand equity.
Mr. Hemant Kohli, aged 34, is the CEO of the company with thirteen years of experience in IT industry. He heads IT&T's new businesses and is spearheading the global thrust.

Sector

In the last decade, IT software and services industry has grown from strength to strength. Industry revenue has grown eight fold from US $ 50 m in FY99 to US $ 4 bn in FY99. The growing worldwide demand for IT services is being driven by the global shift in economies to a network-centric, information-based model. As per the study conducted by NASSCOM McKinsey, Indian IT strategies are likely to generate nearly US $ 87 bn by FY08. This include a sizable chunk of IT enabled services (US $ 19 bn), IT services (US $ 39 bn), software production (US $ 20 bn) and E-business (Us $ 10 bn). IT&T is ideally positioned since it is into all these business segments.

Reasons to apply

The company gets paid in dollar denominations at the rate of US $ 20 per 20 minutes while its costs are in Indian rupees. As a result, it recovers the loaded cost i.e. interests and other expenses in two days. Also, it would benefit from rupee depreciation.

The NetmanageIT model enables the company to have a better bargaining power in terms of rate per query, which is based on the rankings. Since most of the engineers of the company are ranked high by customers, IT&T clearly advantage.

The company has an impressive client list, which include DSP Merrill Lynch, Coca-Cola, Ranbaxy Laboratories, Castrol, HDFC Bank, and Canara Bank.

The market for IT enabled services like Smartsource and eTransition has huge potential and demand. Moreover, the company has entered into an agreement with ePeople, USA for establishing a web-based technical support centre for which 80 engineers have been registered with ePeople. This would give access to the global market for the company to exploit.

Reasons not to apply

One of the worrying factors about the company is the net receivable position. For the first quarter ended June 2000, the net receivable amounts to Rs 85 m on sales of Rs 90 m. with working capital cycle of 65 to 70 days.

The barriers to entry for e-enabling businesses are very less except for technical know-how.

On the share price of Rs 81, the P/E multiple works out to 263 times on its FY00 earnings, which is expensive comparing to the valuations of top information technology companies in India.

Financial Performance

(Rs m)	FY98	FY99	FY00

Sales	219.5	170.1	194.0

Other Income	8.9	13.3	14.4

Total Income	228.4	183.4	208.4

Expenditure	221.6	174.9	167.6

EBIDTA	6.8	8.5	40.8

GPM (%)	3.1%	5.0%	21.0%

Depreciation	-	-	-

Interest	2.4	2.6	2.4

Profit before tax	4.4	5.9	38.4

Extraordinary item	0.3	-	-

Less: Tax	1.7	1.6	2.8

Net Profit	3.0	4.3	35.6

NPM (%)	1.4%	2.5%	18.4%

Issued shares (m)	116.0	116.0	116.0

EPS (Rs)	0.0	0.0	0.3

P/E (x)	3,131.1	2,184.5	263.9

Please note:
* The estimates of financial performance are those provided in the Issue Offer
Document and are not those of www.equitymaster.com.

Funding

Where the money comes from...

(Rs m) (%)

Share capital 317 100%

Total 317 100%

Where the money will go...

(Rs m) (%)

Investment in web-enabled services 273 86%

Funds for e-modeling and incubation
of Internet related services 23 7%

Expenses of issue 20 6%

Total 317 100%

Shareholding

Particulars	Pre-Offer (%)	Post-Offer (%)
Promoter and Associates	100.0	74.8
Others/Public	0.0	25.2
Total	100.0	100.0

	The company gets paid in dollar denominations at the rate of US $ 20 per 20 minutes while its costs are in Indian rupees. As a result, it recovers the loaded cost i.e. interests and other expenses in two days. Also, it would benefit from rupee depreciation.
	The NetmanageIT model enables the company to have a better bargaining power in terms of rate per query, which is based on the rankings. Since most of the engineers of the company are ranked high by customers, IT&T clearly advantage.
	The company has an impressive client list, which include DSP Merrill Lynch, Coca-Cola, Ranbaxy Laboratories, Castrol, HDFC Bank, and Canara Bank.
	The market for IT enabled services like Smartsource and eTransition has huge potential and demand. Moreover, the company has entered into an agreement with ePeople, USA for establishing a web-based technical support centre for which 80 engineers have been registered with ePeople. This would give access to the global market for the company to exploit.

	One of the worrying factors about the company is the net receivable position. For the first quarter ended June 2000, the net receivable amounts to Rs 85 m on sales of Rs 90 m. with working capital cycle of 65 to 70 days.
	The barriers to entry for e-enabling businesses are very less except for technical know-how.
	On the share price of Rs 81, the P/E multiple works out to 263 times on its FY00 earnings, which is expensive comparing to the valuations of top information technology companies in India.