Geekay Imaging Ltd.

Geekay Imaging Limited

Issue Opens : September 25, 2000 Issue Price: Rs. 20/- per share (FV - Rs.10/-) Issue Size: 23,50,000 shares amounting to Rs.470 lakhs Registrars to the Issue: Karvy consultants Ltd.	Issue Closes: September 29, 2000 Minimum Application: 200 shares @ Rs.10/- each Post-issue promoter’s stake: 48.97 % Lead Managers: Canara Bank. SBI Capital Markets
Recommendation : Average

Listing on: Bangalore and Ahmedabad Stock Exchanges

Executive Summary

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Business

Industry Scenario

Financials

Project Analysis

Critical Success Factors

Competitive Position

Market Scenario

Recommendation

Business

The company was incorporated as Geekay Imaging Pvt. Ltd. in May 1995 and commenced business in November 1995. Subsequently in March 2000, the company was converted into Public.

Geekay was engaged in "Pre-Press Digital Bureau" activities, which included digital graphic and multimedia solutions like Digital Colour Scanning, graphic designing applied in printing, publishing and advertising industries. The company offered these services for the past five years and is extending to customized software solutions.

The company also intends to concentrate on software projects in E-Commerce Solutions catering to the industry, development of Web Servers & Management of Cookies and multimedia solutions covering multimedia and imaging solutions.

The company has developed IROPS (Internet Remote Order Processing System), a software product that takes care of industrial automation services of various industries. The Company has orders worth US$ 361,200 for the product from SWA Germany.

Geekay has three promoters. Mr.G.K.Deshpande, a mechanical engineer and an MBA had worked for Indian Aluminum Company Limited (Indal) for 14 years. He had an experience of being associated right from shop floor production to domestic and export sales. Mr.Anand B Madyalkar, a mechanical engineer underwent training in various computer courses and is well versed in graphic solutions and multimedia. Mrs Rupa G Deshpande was a partner in an unit making Aluminum offset plates at Gulbargah from 1993 to 1998. She received the state level prize, excellence in Entrepreneurship in 1995 for her work in graphic industry.

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Industry Scenario

The Indian software industry generates revenues from Exports and domestically. The export revenue can be from onsite projects or from off shore activities. As regards the domestic market, products developed in the country are few in number. There are very few software companies that are engaged in product development. Ironically though, this is the best way to generate revenues and that too for longer periods of time.

Indian companies import software packages and provide some value addition to them. The also market imported software in the domestic market.

The Exports have been growing at an annual rate of more than 55 percent. Over the next 10 years, the domestic IT industry is projected to grow to $12 billion, which is almost 30 times the current size.

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Financials

The company had started off as a loss making one, with a net loss of Rs.4.22 lakhs in FY96, but managed to earn a net profit of Rs.3.78 lakhs in FY97. In FY2000, the net profit was Rs.21 lakhs. The company definitely has a long way to go when it comes to increasing its revenues and profitability.

Financial Performance(in Rs. lakhs)
Particulars	1996-97	1997-98	1998-99	1999-2000
Total Income	35.91	54.97	71.72	200.47
Net Profit	3.78	3.09	4.62	21.13
EPS (Rs.)	1.99	1.63	1.85	1.25
RONW (%)	19.69	14.27	12.58	10.02
NAV	30.11	32.65	37.78	15.07

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Project Analysis

The money raised through the issue would be used for the following activities:

To establish Software Development Centre at Bangalore
To set up overseas marketing offices at USA, UK and Singapore.
To meet the working Capital requirements of the software division.
To meet the expenses of the issue.

COST OF THE PROJECT	Rs.in lakhs
Land and Office building	161.00
Computers ( Hardware & Software)	331.43
Plant & Machinery	70.57
Furniture &Fixture(Including interiors)	52.00
Vehicles	12.00
Fixed Cost for Overseas Offices	33.00
Deposits (KEB)	02.00
Working Capital	65.00
Deferred Revenue Expenditure(Overseas Office)	45.00
Pre-Operative Expenses including issue expenses	78.00
Contingencies	100.00
Total	950.00

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Critical Success Factors

The company has established itself in the printing, publishing and advertising agencies. Popularly known as "Pre-Press Digital Bureau", the company has good experience in multimedia technology. For the last five years, the company has been successful in IT-related services.

Geekay has already developed a product IROPS (Internet Remote Order Processing System), which handles industrial automation services of various divisions. The company has already got orders worth US$3.6 lakhs for the product from SWA Germany.

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Competitive Position

The company plans to offer customized solutions to domestic and overseas clients. However, it has only one firm order in hand, which is also not of a very high value. Moreover, it is new to the IT industry, when it comes to development of products. The company is likely to face stiff competition in the domestic as well as the international market.

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Market Scenario

The IPO market was in a boom period during the first few months of 2000. But now, the market has learnt to discount the abnormal premiums that the companies were charging during the boom phase. The software companies that have mushroomed to make profit from the investors money, are now shying away. In such a scenario, companies that are coming out at a premium, especially from the software sector, are not warmly welcomed, unless they really are worth the price they are charging.

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Recommendation

The traditional business of the company has been in image-related multimedia activities. And it is entering into IT providing software solutions in E commerce and the automation facilities of the services in various industries. There seems no relation between the existing business and the new venturing business. So the actual synergy is doubted.

When the offer price is taken into consideration, the P/E multiple works out at 13.24 with the last three years weighted average of EPS Rs.1.51. However, such calculations are really no indication of how the scrip is likely to trade on the bourses. Keeping the market conditions and the qualitative factors in mind, the scrip seems to be overpriced.

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