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Strategies & Market Trends : India Coffee House -- Ignore unavailable to you. Want to Upgrade?

To: Mohan Marette who wrote (5605)	8/17/1999 2:05:00 AM
From: Mohan Marette	Respond to of 12475

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To: Mohan Marette who wrote (5605)	8/17/1999 9:04:00 AM
From: Mohan Marette	Read Replies (1) \| Respond to of 12475

Indian software IPOs defy US trend,reports Financial Times,UK ft.com By Krishna Guha in Bombay Demand for initial public offerings by technology companies may be faltering in the US, but not in India, where the fast-growing sector is still popular with investors. Encouraged by first-quarter results, which showed that Indian software companies were still growing at a rate of 40 per cent a year, investors are lapping up a stream of IPOs. The latest company to come to market, Polaris Software, was subscribed 15 times. It raised Rs900m ($21m), including a Rs160m sale by existing investors. While retail interest for Polaris was keen, institutional interest was stronger still - a sign that professional fund managers are not losing faith in the sector. "The US market is different," says Alroy Lobo, analyst at Kotak Securities. India's technology sector is dominated by software services companies with visible earnings, rather than internet stocks. Moreover, Indian software services companies have promising earnings outlooks. "They are in the margin expansion phase as they move up the value chain," Mr Lobo says. While the US wobbles, India's software IPO boom is gathering pace. In the four months to July, 11 software companies submitted offer documents to India's market regulators. This compares with only 16 IPOs from the rest of finance and industry put together. During the last financial year, just five software companies came to market - but investors were well rewarded. The most high-profile was Sonata Software, which was offered at Rs90 a share and doubled in value on the day of listing. It is currently quoted at about five times the offer price. Success stories like this, coupled with a small free float for software companies trading in the secondary market, have whetted investor appetite for more. "If the secondary market does well, I think we may get 40 primary issues by information technology companies this year," says D. R. Mehta, chairman of the Securities and Exchange Board of India. "Software is one area where India has some kind of strength." The rush of IPOs stems mainly from a batch of second-tier software companies, which have only now grown big enough to list. Some require capital to expand internationally. They are attracted by the generous valuations available in India today: up to 80 times forward earnings for the best software companies, 20 to 30 times for promising medium-size firms. "A lot of these companies are thinking of a two-step process - going for an Indian listing then a US listing," Mr Lobo says. Beside raising capital, a listing also raises the public profile of a company, helping it to win higher-value business from quality clients. But the amounts raised are small. The 11 software IPOs between April 1 and July 31 raised only Rs1.8bn. This reflects the fact that most software companies have strong cashflows and can raise capital through private placements of equity or debt. "This is a knowledge-based industry, not a capital-intensive industry," said Mr Mehta. "Companies list so they can offer employee stock option schemes." Software executives complain that existing regulations force them to raise more capital than they may need - the minimum stake that must be offered to the public is 25 per cent. "There are suggestions that we should allow big software companies to offer only 10 per cent," Mr Mehta says. A decision will be made at a board meeting tomorrow. Meanwhile, some fear that unscrupulous business executives may exploit the software IPO hype to take bogus companies public. The last IPO boom - of finance companies in 1994 and 1995 - ended in disaster after investors found themselves holding worthless shares. But Mr Mehta insists big improvements in regulation will ensure the software IPO boom does not end in similar fashion. "Our disclosures and advertising codes are so tough, nobody is going to get carried away."