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Dhanus Technologies - IPO Note

Thursday, September 6, 2007

Chennai-based Dhanus Technologies (Dhanus), promoted by A.D. Sudhindra,V. Narayanaswamy, Capt. D.S. Srinivasan, offers telecommunication services and unified messaging and enhanced logistics services. The company gets outsourcing (BPO) contracts for telemarketing services from the US, UK and Australia markets.

Dhanus operates in three segments: Telecards: World’s Calling Cards; Teleservices/ITES/BPO Services; and Telematics: FleeTrac service.

Telecards, i.e., V-Tel World’s Calling Cards is offered to Indians traveling abroad. The card is valid in more than 210 countries and allows web-based viewing of call data records (CDRs), and recharge by credit card. It includes web-based calling, SMS-based call back (wherever legal) and web-based call back (wherever legal). Dhanus launched its global prepaid calling cards in June 2004 and since then been very successful in building up an extensive network of dealers, agencies and direct marketing associates across India, South-East Asia and West Asia. The company has also become Airtel’s distributor for its SIM cards for the whole world excluding India and Dubai.

The BPO services were started in 2006 by acquiring business along with assets and liabilities. The BPO operations have 85 seats working three shifts and are to be expanded in stages to 500 by end 2007. The software development revolves around Internet protocol (IP) telephony, Interactive Voice Response (IVR) applications, Customer Relationship Management (CRM) applications and web-based business process applications.

FleeTrac is an integrated tracking, communication, monitoring and enterprise management product for vehicle owners. FleeTrac uses the GPS system for vehicle location. The location information along with other data are conveyed to Dhanus’ central data centre in Chennai through Internet via General Packet Radio Service (GPRS) service.

Dhanus has two subsidiaries. The loss-making Dhanus Technologies Inc., US, has acquired Mpingi Inc., US, which launched voice-over-Internet-protocol (VoIP) service in the US. The second is the profitable Dhanus Global Medicare engaged in the provision and sales of medical equipments and services.

The net proceeds of the issue will be utilised for acquiring and setting up corporate office, network operating centre and infrastructure for the BPO and FleeTrac services.

Strengths

  • There has been a dramatic growth in Indians travelling abroad, and their number is estimated to reach around 35 million passengers by 2010. Has sold over 1.68 lakh global calling cards in the year ending March 2005 (FY 2005), 2.25 lakh cards in FY 2006 and, 4.68 lakh cards in FY 2007, and 8.62 lakh cards in all till end June 2007. Has a VoIP-based phone service targeting Indians in the US. The market for this service is also growing.

Has received registration for setting up a vehicle tracking system using vehicle mounted unit (VMU) with an in-built SIM card with GPRS capability to work on global positioning satellites (GPS) from the Department of Telecommunications, Ministry of Communications & Information Technology, government of India. Has also tied up with Airtel to provide GPRS service, which is operational. The Delhi office has started marketing the service.

Weaknesses

  • Is yet to receive no-objection certificate (NOC)/license from the Department of Telecommunications for selling international calling cards in India. Also, the track record of the companies with which the directors have been associated is not encouraging. One of the independent directors has a criminal proceeding against him. Apart from this, there are a number of legal proceedings against the company.
  • Does not have its own telecom infrastructure in countries where its global calling cards are operational. Thus, it is totally reliant on the infrastructure of the telecom operators in those countries.
  • Calling card is not a high-tech business and is highly competitive.
  • Although, FleeTrac services has growth potential in India given its usage in transportation, courier, security, police, defense, logistics and supply chain management; the concept of vehicle tracking service is in the introduction stage in the country. Its acceptability and success are yet to be tested. Moreover, the technology used for FleeTrac service is universally available. Thus, there is possibility of new entrants and increasing competition.
  • Profit margin is falling. On a standalone basis, telecom service’s profit before interest and tax (PBIT) margin dipped 580 basis points (bps) to 19% in the year ending March 2007 (FY 2007) with sales contributing 56% of revenue. Software service had a PBIT margin of 47.4% in FY 2007, down from 66.1% in FY 2006. Contribution to total revenue was 35%. The BPO services contributed 9% to the total revenue in FY 2007, with PBIT margin down from 71.1% in FY 2006 to 61.8% in FY 2007.

Valuation

At the price band of Rs 280-Rs 295, FY2007 consolidated EPS on post-issue equity works out to Rs 12.4 and P/E o 22.7-23.9. On a standalone basis, EPS on post-issue equity is Rs 13.7 and P/E 20.4-21.5. There is no comparable listed player. The company’s track record of fast growth is a plus for the company.

Posted by FR at 7:25 PM  

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