NEW GOVERNMENT
COMMENTARY
INTERVIEWS
SPECIALS
CHAT
ARCHIVES
SEARCH REDIFF

Hughes Software makes a sizzling debut on the bourses, mulls takeover of infotech firms

Hughes Software Systems, a unit of Hughes Electronics Corporation of the US, opened its listing at the Bombay Stock Exchange and the National Stock Exchange today in a spectacular fashion. The infotech company's initial public offering was at Rs 630 a share. Since today is the first day of trading in this stock, circuit-filters are not applicable.

This factor seems one of the reasons for the sensational spurt in the share price of HSS. The company's shares soared by 157 per cent at Rs 1,625 on their first day of trading at the Delhi Stock Exchange.

The information technology company, which focusses on Internet-based technologies and services, first traded at Rs 1700 at the DSE, 170 per cent above the IPO price of Rs 630.

The stock traded in the range of 1,700-1,900 rupees at the NSE after opening at Rs 680. The volumes, too, were high: more than 300,000 shares at the NSE and more than 150,000 at the BSE were traded.

The share ended at Rs 1,518.90 at the BSE, representing a 141 per cent premium to the offer price of Rs 630. At the NSE, the share closed at Rs 1,519.80. Thursday's gains were largely speculator-driven, but the company's profile and American parentage could lead to bullish sentiment, dealers said.

HSS, a communications software firm, is a subsidiary of Hughes Network Systems. HNS is an affilliate of Hughes Electronics, a subsidiary of General Motors Corporation of the US.

The firm has moved from being just a software services firm, to offering communication software products; its profile as a products maker gives it an advantage over other firms that are only into services, industry observers said. Others attribute the sensational debut to hype.

HSS, which has gone ahead with simultaneous listing at the Bombay, Delhi and National Stock Exchanges, opened at Rs1,625 against an offer price of Rs 630 on the BSE. This means a huge premium of around 160 per cent to its issue price. This translates into a forward multiple of around 103. (Forward multiple = the current price divided by the projected earnings per share or EPS for, say, a year from now.)

The scrip gained 158 per cent within half-an-hour of opening and hit the Rs 1,770 mark. The total number of shares listed are 875,000.

Dealers said euphoria over the software sector is reactivating the primary market. In the last couple of months, several software issues hit the market, and many more are expected in the coming days. HSS and Kale Consultants are among the infotech companies that have managed to raise huge sums from the primary market.

Market observers said HSS conforms to what has become a convention: underpricing of initial public issue of shares, making it attractive to investors and helping them to make a killing in the secondary market after listing. The issue was oversubscribed more than 100 times. This, dealers said, might create a demand for the scrip in the secondary market.

HSS has initiated talks with merchant bankers who will be mandated to identify and explore the possibility of taking over information technology companies in India and overseas.

''We are negotiating with three Indian merchant bankers with a capacity to search globally for acquiring IT companies,'' said Arun Kumar, president and managing director, HSS.

The contract with the merchant bankers would be penned within three weeks, he said without naming them.

''We would primarily seek acquisitions in India. But we are not averse to takeover companies abroad,'' Kumar said.

Kumar said HSS would explore both ways of buying out the companies -- stock swap and cash. ''Being a zero-debt company, we have great leverage in raising loans,'' he said on the issue of funds set apart for acquisitions.

Kumar, flanked by a host of top officials from HSS and the Delhi Stock Exchange, flagged off trading of HSS shares at the capital's principal stock exchange today.

The software company of the General Motors group, the first company in India to fix IPO price through a book building process, opened at Rs 1,700, a premium of 150 per cent to the IPO price of Rs 630, on listing at the DSE.

In September-October, HSS had raised Rs 2.75 billion through its IPO of 4.3 million equity shares, of which 3.9 million stocks had been alloted through the book building route, while 400,000 shares (about ten per cent) had been issued under a fixed price. The book-built portion was oversubscribed 25 times while the fixed price offer to retail investors was oversubscribed 51 times.

The money was raised to enable the company to offer stock options to its employees even while funding its organic and inorganic growth.

''On our inorganic growth strategy, we will not follow the model of Infosys Technologies of adding manpower to increase revenues. Rather, we would seek ways to improve productivity per employee in terms of revenue generated by focussing on value-added products and services,'' Kumar said.

The software company expects to earn about 25-30 per cent from the current 18 per cent of its total revenues from products in the next two to three years. HSS has estimated a turnover of Rs 1.05 billion for the 12 months ending March 31,2000 from Rs 870 million for the 15-month period ending March 31, 1999.

HSS would continue to provide software solutions to Hughes group of companies while catering to its over 40 clients.

HSS's IPO was lead managed by Kotak Mahindra and was oversubscribed 30 times amassing Rs70 million.

HSS has a post-issue paid-up capital of Rs 166 million and expects to post revenues of Rs 1.04 billion and a profit after tax of Rs 261 million for fiscal year 2000.

Business