Small size, big price

IPO REVIEW

Aurionpro Solutions, a tiny banking software solutions company, has priced its maiden public offer at a premium to the biggies.

It is well known that a raging bull market attracts a flurry of IPOs. Of good quality and bad. The prospectus of the Aurionpro Solutions makes one wonder which category this one belongs to.

Surprisingly for a technology firm that was set up in 1997, the company has not taken the conventional route of roping in private equity investors to fund its growth in early days.

Instead, the Mumbai-based Aurionpro Solutions with revenues of just about Rs 10 crore plans to collect Rs 25 crore through its maiden public offer. The company is offering 30 lakh shares with face value of Rs 10 each at a price band of Rs 81-90. The stock thus commands a price earnings multiple of 30 times its FY05 earnings, more than its mighty competitors like Nucleus Software and Polaris.

Aurionpro provides technology solution in the banking space which is getting crowded. Even larger players are finding it difficult to walk the talk. But one thing going for the company is its small size. This means that the company could post fantastic growth rates from its lower base, provided the management is able to ramp up quickly.

In FY05, the company posted a 121 per cent consolidated topline growth and a 432 per cent bottomline growth. The management is hoping that it would be able to keep up a fairly high growth rate, though it is unwilling to provide a precise guidance.
 

Financials
(Rs crore)	FY05	FY04	% change
Total income	10.50	4.74	121.52
Net profit	2.77	0.52	432.69
EPS	3.05	0.70

The company's promoters include Sanjay Desai who has previously worked with Citibank and MphasiS BFL, Amit Sheth who has worked with Twentieth Century Finance and Lloyds Securities, Bhavesh Talsania who has experience in managing software delivery and data processing operations and Paresh Zaveri who has experience in corporate finance and supply chain.

That sounds like a team with good experience. Currently, the company employs about 190 people and proposes to add more after it creates the infrastructure to employ more engineers.

The proceeds of the IPO would be used to expand existing infrastructure, increase presence overseas and grow inorganically through acquisition of products and customers.

The company spent about one crore rupees last year in acquiring a US based IT services company Agile Solutions LLC which provides custom software development for clients in banking, finance and logistics. It had revenues of $285,810 and profits of $65000.

Aurionpro has domain expertise in cash management and risk management solutions for banking & financial services and in internet-based solutions. Director Amit Sheth says, "Our focus is on cash management in corporate banking, as more investment is expected in the same. For international clients, the focus is on risk management products."

But analysts say that the cash management solutions that the company offers have already been put in place by most private banks. So that may not be a big business in future.

However, in future, one can expect business from public sector banks, which are currently in the process of implementing core banking technology. In risk management, Aurionpro has implemented its solutions only for one company and hence lacks experience in the same.

Aurionpro's biggest client in India, HDFC Bank contributed revenue of Rs one crore last year accounting for about 10 per cent of total revenues. The next biggest client is UTI Bank. Its biggest foreign client, a logistic company, Cyberlog (actual customer is BDP International, a chemical freight forwarding company), also added Rs one crore to Aurionpro's' kitty. The company's products, also covering areas like credit cards, bancassurance and analytics are used by a dozen other Indian and foreign clients.

However, analysts find the valuations very high. The stock has a P/E of 29.5x based on FY05 EPS of Rs 3.05, at the upper end of the price band and at 26.6x at the lower end. It competes with Polaris Software (P/E of 26.3x), Delhi-based Nucleus Software Exports (31.8x) and Pune-based CashTech.

For FY05, the company generated total income of Rs 10.50 crore and a profit after tax of Rs 2.77 crore. In comparison, Polaris Software posted a total income of Rs 685 crore and a profit after tax of Rs 53.40 crore. Obviously, Aurionpro's high net margins make it immensely attractive.

However, since the company is tiny it can achieve very high growth which could make valuations cheap if one counts future earnings. But this also come with associated risks. If you are a cautious investor not willing to bet on a new set up, count on their future and pay a price for it then Aurionpro may not be your kind of stock, say analysts.

But there is one word of caution: the current market conditions may mean that the issue may be a success like many other IPOs in the recent times and investors may make listing gains too. But then there is risk of getting invested in a not so good quality company and getting stuck if market conditions turn unfavourable. Take your pick.

Issue opens: September 27, 2005
Issue closes: October 4, 2005