EdServe's IPO manages to survive

The initial public offer (IPO) of EdServ Softsystems of Rs 20 crore managed to sail through even while the Rs 44-crore IPO of Gemini Engi-Fab had to be withdrawn last week due to lack of investor interest.

The IPO of EdServe, an e-learning software provider, was subscribed 1.30 times and received over 5.14 million bids, for over 3.9 million shares, till 7 pm today, the closing day, as per the information available on the National Stock Exchange (NSE) website. The price band for the issue was fixed between Rs 55 and Rs 60.

As far as the financials go, EdServe had revenues of Rs 18.2 lakh in 2006-07. In the next financial year, it grew to Rs 3.9 crore and profits were at 2.5 crore. This manifold growth was mainly due to the acquisition of another company, ELMAQ, from the promoter himself.

At the upper end of the price band of Rs 60, the offer price discounts the estimated 2008-09 earnings by 20 times on a post-offer equity base. This is at a sizable premium to broader market valuations.

However, market players are wary of the IPO mainly because the company was small with a mediocre business model, yet was demanding huge premium.

“It has been noticed in the past few IPOs that the companies were doing some pre-issue arrangements with the institutions just for the listing purpose. Hope it’s not the same case here too and most of the institutions do not get out soon after listing,” said a analyst from domestic brokerage.

The IPO was given a rating of 1 out of 5 by rating agency ICRA indicating poor fundamentals. The proceeds of the issue would be utilised mainly for establishing the HEAL Lab to develop, test, install, connect and implement the D2J (Degree to Job) content across all heads offices. It will also finance the cost for establishing heads offices across India.

Another object of Edserv would be to finance the cost for developing and implementing the copyrighted centralised LAMPS Portal Engine. Edserv will establish 200 Partner-led EdCenters under BMC model across India and South Asia.