New Delhi/Mumbai: There isn’t yet a “Hope your initial public offering (IPO) goes splendidly!” card in the vast archives of 123greetings.com, but if there were, Arvind Kajaria could use a few.
In an IPO reminiscent of the blithe heyday of the dotcom era, Intrasoft Technologies Ltd—of which Kajaria is managing director—is hoping to persuade investors to fund the growth of its e-greetings website. Intrasoft’s offer closed its second day having signed up retail investors for 35% of their share of the IPO and institutional investors for 122%. The offer closes on Friday.
In its 13 years, 123greetings.com has evolved from being a purveyor of maudlin greeting cards, plagued by pop-up ads, into being a repository of near-universal goodwill. Cards exist not only for Diwali and Valentine’s Day, but also for Hanukkah (a Jewish holiday), Thanksgiving and Kwanzaa (a US celebration of African heritage). But the site still traffics purely in online greetings, a business model that has led a number of analysts to advise investors against buying into its IPO.
According to its prospectus filed with the market regulator Securities and Exchange Board of India, Intrasoft posted revenue of Rs21.38 crore and profit of Rs5.3 crore in the last fiscal. At the lower end of its price band of Rs137-145 per share, Intrasoft hopes to raise roughly Rs50 crore from the issue.
The firm’s market capitalization will thus hover around Rs200 crore—eight times its revenue for the past year, and nearly five times more than the net worth of the firm, which stood at Rs37.6 crore on 30 September 2009.
Of the Rs50 crore or so Intrasoft hopes to raise, Rs13 crore has been earmarked for acquiring and furnishing 10,000 sq. ft of office space in Kolkata, Rs2 crore for infrastructure upgrades, and Rs20 crore on branding and promotion. The rest, says Intrasoft’s prospectus, will pay for “general corporate purposes”, a fuzzy description that Kajaria says includes the development of a few new products. “People visit our website in an emotional frame of mind, and we’re hoping to now offer gift certificates along with greeting cards,” he said. “If they attach a $10 (Rs456) certificate with the card, we’ll make a commission.”
The main focus, Kajaria admits, will continue to be online ads. At least 85% of Intrasoft’s revenues come from advertisers, half of these from the US. In its prospectus, Intrasoft cautions that advertiser contracts are “short-term agreements for periods ranging from one month to one year and can typically be terminated without cause and with little or no notice or penalty”.
Apart from Info Edge Ltd, which owns Naukri.com, no other dotcom-dependent company has gone public in India.
“Online greetings still form a secondary activity online, and as a sector, it’s seen only a 10% rate of growth over the last four years,” says Mrutyunjay Mishra, co-founder of JuxtConsult, an Internet market research firm.
Mishra points out that in India, with its sluggish rate of Internet penetration, relying on online advertising can rarely be a sustainable business model. This has rapidly become true of the US as well, where online advertising will grow only by 6.4% in the near future, according to a PricewaterhouseCoopers analysis.
Though Intrasoft’s IPO is the first from a firm in its particular niche, at least 100 firms have raised amounts smaller than Rs50 crore from equity markets in the past seven years. Nearly six out of 10 such firms had double-digit gains on listing day.