The Hindu Business Line : Goldstone Technologies: Reject

Shareholders of Goldstone Technologies can reject the open offer being made by the acquirer, Goldstone Exports, at Rs 24.01. This open offer by Goldstone Exports for 20 per cent equity stake in Goldstone Technologies follows the preferential allotment of equity made at Rs 21.

Despite the lacklustre financial performance of Goldstone Technologies for the year ended March 31, 2006, the reject call on the stock is based on two factors.

Foray into IPTV

One, the company recently forayed into the IPTV (Internet Protocol Television) segment by entering into a strategic alliance with the Singapore-based SPL Innotech. Using this platform, the company plans to stream Indian television programmes and offer video-on-demand services to non-resident Indians. With at least two crore Indians living abroad, IPTV promises to offer a steady stream of revenue for players in this segment. As the opportunity grows, however, the competition is also expected to intensify in the near future.

Two, the Goldstone Technologies stock is trading at about Rs 20. At these levels, the offer price of Rs 24 does not represent an adequate premium for shareholders to exit the stock. In the quarter ended March 31, 2006, the company staged a smart improvement in its post-tax earnings on a quarterly basis. Shareholders would do well to monitor this trend over the next few quarters.

However, risk-averse shareholders may consider tendering a part of their holdings in this offer, as the prospects of the IPTV venture are uncertain at this point in time. Moreover, in its core software development business, smaller players will increasingly face a slowdown in business momentum and sustained pressure on its operating margins in the medium term.

Offer details: The preferential issue of 19 lakh shares in Goldstone Technologies to Goldstone Exports that has triggered this open offer for 20 per cent follows the conversion of an unsecured loan of Rs 4 crore made by the latter.

UTI Securities is the managing the offer; the offer opened July 10 and will close on July 31.

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