IPO FROM AN INTANGIBLE ASSET COMPANY: FAT PIPE NETWORKS INDIA LIMITED.

The company earned a net profit after tax of Rs 399.37 lacs for the year 08-09, which was transferred to General Reserve. The balance at the end of the previous year in General Reserve was Rs 49.97 lacs. If you add, the profit transferred this year, to the figure it should be Rs 449.34 lacs. Simple arithmetic. However, as per the statement of accounts as furnished in the DRHP filed with SEBI, the figure is Rs 2103.04 lacs. For the difference, the corresponding entry shown in the balance sheet is Intangible assets.

Consider the following risks factors:


• The Company operates in a highly competitive environment and the competitors could gain a significant advantage by introducing a new product in a particular segment before the Company does.

• The majority of the operations of the Company are carried out from its branch offices in the USA. Risks related to FEMA.

• The funds requirements are not appraised by any Bank or Financial Institution.

• The Company proposes to acquire businesses/companies located outside India, the company is yet to identify companies/ businesses to be taken over.

• The Company has not yet tied-up for debt component for enhanced working capital needs.

• The Company has not paid dividend in the past.

• The global operations expose the Company to complex management.

• The combined employee strength is 120 and 50% are in sales and marketing.

• The average cost of acquisition of Equity Shares by the Promoters is at Rs 10/-

• Receivables out standing as on 30-09-09 are at Rs1269.69 lacs, against a turnover of Rs 2958.68 for the same period.There are debts that are outstanding for more than 180 days.

• Details cash/bank balances are not furnished. That is, in which bank the amount shown, as on balance sheet date, was kept.

• No project to be implemented. Structured IPO.

• IPO grade -2.



EPS for the year FY 10-11 is expected to be Rs. 5.50 per share. At the lower end of the price band of 82, PE multiple works out to 15 times. Similar companies in IT networking equipments / manufacturing are presently ruling at PE of around 8 times.

Investors are advised to stay away from the issue.