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February 8, 2015

IntraSoft Technologies Limited : Recent Developments

I would not provide details analysis of recent quarterly result , It has superb numbers . I was expecting revenue of 270-280 cr for full year but now we will have to increase that target to 340-350 cr since last 12 months trailing revenue is already around 290 cr .

I would like to focus on behind the scenes development . I have identified 2 developments .

First development .If you visits https://www.linkedin.com/jobs2/view/25829786 then you can see that they are looking for V.P. Corporate Finance at 123Stores.com . This job advertisement has following description .

S/he will work with the founders to collate data, present to investors and be the central figure in closing each transaction.
The V.P.'s responsibilities will include:

•   Collating, preparing and analyzing complicated numerical information.

•   Compile and pitch presentations to the Investors.

•   Liaise and identify appropriate Investors.

•   Participate in the negotiation of term sheets, due diligence and the preparation of
      definitive documents.

•   Investor Relations.

Management has taken tiny step in right direction by seeking profession help instead of doing each and everything themselves .

Second development .

They have mention during quarterly result announcement "To increase our focus on the E-Commerce business, a new company was set-up in USA under the name of 123Stores, Inc. to carry out the E-Commerce operations. " This looks bit confusing for existing investor since we were already aware about 123Stores, Inc. But they actually means 123Stores was under 123Grectings.com, lnc.  Now it is moved from 123Grectings.com and became direct subsidiary of Intrasoft technologies .

If you connect both the developments then we can come to conclusion they are looking for funding for their  E-Commerce business . So, I will not be surprise If see first round of funding for 123Stores, Inc in next few months . They can start with around 10 % but they will have to make sure after few funding rounds their holding should not drop below 50% else it will become their associated company .

Benefits of Funding :
No doubt about it will bring dilutions . But it will help company to accelerate it growth further . We should appreciate the company for getting this much growth with internal accruals .We don't know what should be the correct valuation for Intrasoft but this funding may give some hint for valuation of the company .


Worst case for E-Commerce in India :
        All the E-Commerce running their business on mercy of state govt policies . If all the state follows rules & regulation like Uttar Pradesh does then all the E-Commerce companies will be on their knee .Right now , We don't need to worry about it for Intrasoft . I am not CA but may be GST will make life of E-Commerce companies comparatively easier  .

Most of the E-Commerce companies are not accepting order from Uttar Pradesh  including Noida . All most all the courier companies like Blue Dart , Fedex has stopped shipping to Uttar Pradesh .The  following process is the reason behind it . They don't even have any minimum limit for item value to follow following process . So, if buyers order even 200 worth of item he has to follow this process .

Uttar Pradesh  Process:  
Non-commercial shipments addressed to individuals, Govt. Agencies and unregistered dealers require to be accompanied with Form 39.

Forms 39 are in 3 parts marked original, duplicate, triplicate. Original part is retained by Sales Tax department of check post at the time of entry and the duplicate delivered to consignee along with the shipment.

Form 39 are issued by UP sales tax authority. Form 39 is valid for one month only. Validity of Form 39 is mentioned on the form.

These forms are obtained by the consignee(buyer) signed & stamped and the triplicate copy is retained by the consignee and the original and duplicate are sent to the consignor(seller) by consignee (buyer). The original and duplicate copies of these forms as applicable should be signed and stamped by consignor (seller), consignee (buyer) and sales department of UP.

Form 39 without signature and stamp of Sales tax department of UP is not valid. It should be properly filled with stamp and signature of consignor & consignee.

Collect original & duplicate of these forms as applicable from the consignor(seller) at the time of pickup.

Check whether the forms bear the signature of the consignor & consignee and are properly filled.

If the sales officer finds the goods are undervalued then a penalty of up to 40% on the assessed value is levied.

The consignee(buyer) either pays the penalty for clearing the shipment or has to prove to the sales tax officer the correctness of invoice value to get the penalty waived.

Again , I am not CA their might be some other if else conditions for E-Commerce companies but if it is current process in UP then why individual buyer will take all this pain ?


Worst case for Intrasoft : 
I don't believe in theory of  that big E-Commerce companies are going to finish all small E-Commerce companies . In case of IT all bigger companies become more bigger but small remain small or got finished . But that not be true in case of E-Commerce since in IT Industries the main customers were big companies they needed scale and expertise . But in case E-Commerce there might be some customer become loyal to biggies but there will be always some customers who will chase low price and even can become loyal to small E-Commerce companies if this small companies concentrate on customer stratification instead of increase in GMV . Big companies can acquire small companies and consolidate industry but with my limited understanding I can say that they can't kill all the small E-Commerce, may be some will die natural death .

 Nevertheless , if you assume that after 5-10 years only top 4-5 player will be exist in  E-Commerce industry then in that case also Intrasoft will not go to dust due to company's business model . Right now, It generates revenue firstly from direct sale at 123stores.com and secondly it generates revenue from shop in shop ( marketplace inside marketplace) format from companies like Amazon . If Amazon is going to survive then there is good chance even Intrasoft will also make some money .Their platform integrated with Amazon is in production and they are still working on similar platform for Alibaba .

This it the all information available in public domain If any brokerage house setup a conf call then we get some details in deep . Not sure, if currently any brokerage house is following this stock .


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