Care report on Ybrant Technologies IPO

CARE assigned ‘CARE IPO Grade 3’ to the proposed IPO (initial public offer) of Ybrant Technologies (YTL). ‘CARE IPO Grade 3’ indicates average fundamentals. YTL proposes an IPO of 24.98 lakh equity shares.

The grading factors in the technically experienced and qualified top management and favourable prospects surrounding the digital marketing industry, though constrained by the dynamic and evolving nature of the industry. The grading is also constrained by the relatively limited track record, moderate to low levels corporate governance practices in the company and the risk in integration of the operations of the companies to be acquired with the existing operations.

Ybrant Technologies (YTL),promoted in March, 2000 as ‘USA Greetings (India) Private Ltd.’; was engaged in providing back-end support services to technological solutions supplied by Ybrant Technologies Inc (YTI);USA. YTI was promoted in 1999 as ‘USA Greetings Inc’ and was in the business of providing e-greetings solutions, technology solutions and tools for enterprise e-marketing. During FY07, YTI amalgamated with YTL. YTL has three wholly owned subsidiaries - International Expressions Inc, Frontier Data management Inc and Pennyweb Inc.

While the standalone company continues to remain a technology solution provider to the front-end digital marketing companies, the three subsidiaries offer digital marketing services to direct marketers, brand advertisers and marketing agencies. YTL and its subsidiaries offer technology platforms, search marketing services, custom software development, marketing creative development, display Ad marketing network and permission based e-mail marketing methodologies etc.

The promoters of the company - Mr Suresh Kumar Reddy and Mr Vijay Kancharla, are both first generation technocrat entrepreneurs and are actively involved in running the day to day operations. Mr Reddy is the Chairman and Managing Director and is responsible for giving strategic direction to the company and its subsidiaries. Mr Vijay is a wholetime Director and Chief Executive Officer, involved in business development, technology research and managing operations in USA.

For FY07, YTL reported a PAT of Rs.470 lakh on an income of Rs.3739 lakh indicating a PAT margin of 13%. PBIDT margin was high at 36% for FY07 with selling and personnel expenses forming the major cost components. RONW (return on reported networth) for FY07 was high at 26.47%. Further, in FY07 YTL acquired other digital marketing companies through its subsidiaries. On a consolidated basis, YTL and its subsidiaries had a total income of Rs 109 crore and aided by high margins, registered a PAT of Rs.2356 lakh for FY07. RONW (Return on reported networth) for FY07 on a consolidated basis was high at 48.55%.

YTL has been only a back end technology provider for the digital marketing companies and since FY07, through its acquisitions, has sought to move to the front end of the spectrum. The acquisitions have helped YTL acquire two ad networks and an email marketing company. Going forward, utilizing the IPO proceeds, YTL is expected to continue with the inorganic route and acquire companies specializing in other service areas like search marketing, online lead generation etc. YTL will need to integrate these new service offerings with the existing business and exploit the cross selling opportunities that are likely to arise. YTL may also look at establishing itself as a one-stop shop for digital advertising and corner the entire digital marketing budget of the client. This would help optimize Ad-serving across various channels and ensure better returns for the clients. In doing so, a key success factor would be the ability of the top management to integrate the operations of YTL with those of its subsidiaries and acquired companies.