CRISIL assigns grade 2/5 to Neoteric Infomatique IPO

CRISIL has come out with rating report on Neoteric Infomatique IPO. It has assigned CRISIL IPO grade 2/5 to the IPO, in the issue dated July 23, 2008. The company aims to raise approximately Rs 470 million to Rs 480 million through the fresh issuance of 6.97 million shares.

CRISIL research report on Neoteric Infomatique IPO:

CRISIL has assigned a CRISIL IPO Grade 2/5 to the proposed initial public offer of Neoteric Infomatique Ltd (Neo). This grade indicates that the fundamentals of the issue are below average relative to other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. The offer price for the issue may be higher or lower than the level justified by its fundamentals. The grade is not a recommendation to buy / sell or hold the graded instrument, the graded instrument’s future market price or its suitability for a particular investor.

The grading factors in Neo’s market position as one of the top 10 IT-Hardware distributors in India and the increased relationships with some of the key IT Hardware vendors in the past 3 years. The grading also takes into cognizance the favourable volume driven growth expected in the computer hardware industry especially in the laptops and the TFT monitors segment.

The grading is however constrained by the inherent risks attached to the distribution business which is characterized by thin margins and undifferentiated nature of the products. In addition, the anticipated pressure on margins due to expected increase in competition and due to the underlying risk associated with technology driven products is expected to limit the company’s ability to improve profitability in the long term. The grading also reflects the crucial role played by the promoter for developing vendor relationships. Notably also, the company’s stated use of around 20-25 per cent of the IPO proceeds for setting up corporate office might not be the optimum use of the investors money as this is likely to suppress the Return on Equity.

The company aims to raise approximately Rs 470 million to Rs 480 million through the fresh issuance of 6.97 million shares.

About the company

About the company Neoteric Infomatique Ltd (Neo) is into the business of distribution of IT-Hardware products. The company started as a reseller in 1991 and thereafter in the year 1997, commenced the business of distribution. Neo caters to the domestic market and has network of 36 branches, 4 logistic centres and 4 additional warehouses catering to over 7,200 channel partners in around 350 cities.

Neo primarily operates in the domestic market. Monitors, PCs, components such as hard disks, motherboard, RAM and peripherals such as printers form its key offerings. Neo has relationship with around 20 vendors and its key vendors include Samsung, Apple, HP, Hitachi, Logitech, BenQ, Wipro, Lenovo and Moserbaer.

Neoteric is the sixth largest IT Hardware distributor in India. The company’s revenues grew at a compounded rate of 40 per cent between 2004-05 and 2006-07. This was largely driven by the growth in volumes of computer hardware products and due to the increase in the number of relationships with some of the key IT Hardware vendors. In 2006-07, the company reported a net profit of Rs 36.8 million on a turnover of Rs 4,885.4 million. The company’s return on capital employed (RoCE) and return on equity (RoE) was 28.4 per cent and 28.6 per cent, respectively, in 2006-07.