Kale Consultants issue is yet another IT Company that has entered the market close on the heels of Kaashyap Radiant and Polaris. Polaris attracted a record subscription of Rs 1855 crores from about 126000 investors for its 91.68 crore issue of equity despite a premium of Rs 200 Per share. Even the little known Fortune informatics attracted a 40 times over-subscription for its small Rs 2.10 crore issue. 

Like Polaris, Kale issue is also at a reasonably high premium with the issue price of Rs 120 per share. Investors therefore have to assess this opportunity with reference to its pricing also. The issue price of Rs 120 per share represents a price-earning ratio of about 4.6 on the 1999 earnings and the existing equity base. However after the proposed issue, the equity base is expanding from Rs 1.96 crores as at the end of the previous year to Rs 11.48 crores after the issue. The issue price on this equity base and the 1999 earnings will be around 27. It would be more appropriate to look at the investment under this perspective.

Kale Consultants was promoted in 1986 by technocrat entrepreneurs Mr. Narendra Kale, Chairman, and Mr. Vipul Jain, Managing Director. During the last decade, the company has made a mark in the Banking industry with several successful software installations. It is amongst the top three solution providers in the country in this sector, which has the highest potential for software developers in India. It has also successfully developed software products for the Airline and Healthcare industries. 

The future of the company is being built around Banking and Airline related products, which contribute around 40 % and 31 % respectively to the company’s turnover at present. The client list of the company in these segments is impressive and includes national and international operators. Since these products have already been developed and client relations established, the company could expect to reap continued benefits in terms of fresh projects from its existing client base.

During the last five years the company has achieved a steady progress in its turnover and profits and has grown at a compounded annual growth rate of 50%. In 1998-99 it posted a net profit of Rs.5.2 crores on a revenue of Rs 22 crores. 
 

The company is now planning to use the proceeds of the proposed issue amounting to Rs 38.25 crores to augment its working capital and strengthen its infrastructure facilities. 

Notable amongst the future product development plans is the company’s plan to provide shared access to some of its software on a toll basis. This approach is the emerging trend in the software industry with a good potential for a steady long-term income flow. The company is also establishing a new development center in Chennai making an entry into Southern markets. This will be in addition to the existing two development centers in Pune and Thane. The company therefore appears set to consolidate its position in the industry with a niche market specialization. 

While considering the viability of investing in Kale issue at the issue price of Rs 120, it is necessary to take note that the average P/E ratio in the industry is nearly 40. The P/E ratio of 27 that the issue price represents (based on the 1999 profits) still appears to leave sufficient margin for appreciation. Obviously the profits at the end of the current year are likely to be higher than the 1999 profits adding further growth prospects. Investors can therefore consider this public issue which will open on 17 th of September. 

Na.Vijayashankar

10^th September, 1999