New IPO: Edserv Softsystems Limited

Issue Period: 5Feb-9Feb
Price Range: Rs.55 to Rs.60
Minimum Market Lot: 100 equity shares
Issue Size: Approximately Rs.24 crore
Grey Market Premium (in percentage terms): 12-18%
Chances of winning Allotment: Strong
Sector: IT sector (education related)
Sector Overview: (Online Education)

Recommendation: Avoid
High risk investors can take part in the issue subscription to play for short-term listing gains. There is no assurance on the prospects of listing gains which also seems uncertain and a bit risky, looking at the current market conditions. So, low to medium risk investors should stay away from this offering.

Reasons for avoiding the IPO
Edserv stands to be a very small player in the online education space as compared to its competitors like Educomp, Everonn, etc.
Some sharp uncertainties can be spotted out in the past results of the company, especially during the period of last 4 years. The company’s net profit jumped from Rs.1.31 lacs in the year ended March 2007 to Rs.264.28 lacs for the year ended March 2008...stunning!!!!
The company has witnessed a rise in sales during the six months period of April to September 2008 at Rs.434.34 lacs in comparison to Rs.395.33 lacs for the year ended March 2008. But, even on reporting of sales figures for the above period, the net profit figures for the period has, declined from Rs.303.64 lacs to Rs.220.97 lacs. Investors would like to have clarity on the reasons of such uncertain and sharp deviation from steady trend in results.Though, prospects of the sector that the company operates in seems bright and booming, we recommend investors to avoid this IPO for long-term investment purpose, unless there is certainty and stability in the company’s reporting of its accounting numbers.
If the uncertainties, as reported above, continue going in the future, the stock price may become very volatile and sharply fluctuating.