New Issue Watch-'Soft Attractions'
KPIT Systems / Cybermate Infotek The 'soft' attractions
While KPIT is a good investment for medium-to-long term, Cybermate could be good for short-term trading
Mention 'software' and 'infotech' and stock market players get excited. With the economy refusing to show any signs of recovery, equity investors have limited choice. Software being the only sector reporting high growth rates, both large and small investors are giving maximum weight to this sector. Unprecedented demand for software services (led by Y2K and Euro conversion) has meant that almost all the players can report massive growth. This has made it difficult to separate the genuine long-term players from the me-toos. Moreover, the business being promoter-led, assessing a company's true worth becomes all the more difficult. But then, when the going is good, everything looks positive and all negatives are brushed aside. Investors want to be in the boom at any cost.
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KPIT Systems
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Ind. No. : 73
Ind. P/E : 25.6
Issue Size (Rs cr) : 11.61
Post-issue Equity (Rs cr) : 5.16
Promoters' stake (%) : 37.6
Offer Price (Rs) : 90
Appl./Allot (Rs) : 45/45
Projections for 9906
Income (Rs cr) : 27.14
Net Profit (Rs cr) : 4.5
EPS (Rs) : 8.7
Opens :18.2.99
Closes :22.2.99
Listing: Pune, Ahmedabad and Hyderabad
Rating : 51/100
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Against this backdrop, the two recent (in Dec.'98) software issues have received an overwhelming reception on the bourses. Sonata Software, which was offered at Rs 90, is now traded around Rs 325, and Shri MM Softek, offered at par, is traded around Rs 28. Whatever may be their fate after the initial frenzy, software issues have definitely infused life into the primary market which was on its death bed. The jinx of shares getting listed at below the offer price (whatever it may be) seems to have been broken.
Two more software companies - KPIT Systems and Cybermate Infotek- are taking the plunge now. Incidentally, both have been promoted by chartered accountants. The chief promoters of KPIT are S B (Ravi) Pandit (48 years) and Kishor P Patil (36 years). The former is an MS from MIT, US, with specialisation in finance and controls, and fellow member of Institute of Chartered Accountants of India (ICAI) and Institute of Cost and Works Accountants (ICWAI). Kishor Patil also is fellow member of ICAI and ICWAI. Both are partners in Kirtane & Pandit, a reputed CA firm based in Pune. The other four promoters have an IT background. Cybermate is promoted by P C Pantulu (52 years), a fellow member of ICAI, and four others who have varied experience in IT in different industries (though none of them seem to have any significant experience in core software development).
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Cybermate Infotek
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Ind. No. : 73
Ind. P/E : 25.6
Issue Size (Rs cr) : 2.9
Post-issue Equity (Rs cr) : 8.19
Promoters' stake (%) : 28.5
Offer Price (Rs) : 10
Appl./Allot (Rs) : 5/5
Projections for 9903
Income (Rs cr) : 4.27
Net Profit (Rs cr) : 0.47
EPS (Rs) : 0.6
Opens : 5.2.99
Closes :10.2.99
Listing : Hyderabad and Bangalore
Rating : 45 / 100
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KPIT offers a wide range of services which include re-engineering, migration, project development, implementation of ERP solutions like Oracle financials and OLAP (On-Line Analytical Process). It has extensive experience in OLAP having implemented over 50 projects in 10 countries. It has experience of over five years and has handled assignments the world over with reputed companies in the fast moving consumer goods sector (Pepsi Foods Intl., Frito Lay-Asia Pacific, Unilever), pharmaceutical industry (Johnson & Johnson, Gillette) and telecommunications (Birla AT&T Communications, Bharti Telecom).
KPIT has also developed Astra, a supervisory control and data acquisition (SCADA) product in the field of process and design automation. Astra's sales for 1997-98 were Rs 64 lac and its current clients (totalling 33) include Blue Star, Chemito (Toshniwal) Tetra Pak, Hindustan Antibiotics, M- Plast, Indian subsidiaries of international PLC drive manufacturers such as Control Techniques, Groupe Schneider, Tata Honeywell, Thermax and Fuji. For exporting Astra, KPIT has finalised a distributorship agreement with IMO, a well-entrenched distributor of hardware products in the area of instrumentation in the UK. The company is also targeting the Japanese market through manufacturers of instrumentation products for selling Astra as an OEM equipment.
Revenues from Y2K projects contributed 25% of the company's revenues in 1997-98. It has rapidly changed its services from on-site to offshore. The latter contributed 75% of its revenue in 1997-98.
KPIT, at present, has a direct presence in the UK through its wholly-owned subsidiary, Sohm Infosystems, and has also incorporated its 100% owned subsidiary in the US, KPIT Infosystems Inc. This subsidiary will carry out direct marketing in the US, beginning from Dec.'98. KPIT has also initiated moves for incorporating its wholly-owned subsidiary in the Middle East for addressing the markets there.
The company's development facilities are based in Pune and it operates from 13,010 sq ft spread over three facilities there. Two of these facilities (totally admeasuring 12,010 sq ft) are leased premises, and the third facility is owned by the company. They house the 250-odd employees of the company. KPIT will shift its operations to the new facilities being set up (which will be financed from the current issue) on the 40,000-sq ft campus . These facilities are adequate to accommodate the current and future employees - 331 in Jun.'99 (proposed) and 502 in Jun. 2000 (proposed). The issue will also fund the subsidiaries in the USA and the Middle East, and repayment of borrowings.
KPIT (sales of Rs 16 cr and net profit of Rs 1.9 cr for the year ended Jun.'98) intends to achieve sales of Rs 27.14 cr and a net profit of Rs 4.5 cr for the year ending Jun.'99. With sales of Rs 4.55 cr and net profit of Rs 62 lac in the first quarter ending Sep.'98, the targets for the current year are difficult, but not impossible to achieve. On the post-issue equity of Rs 5.16 cr, the EPS works out to Rs 3.7 (actual) and Rs 8.7 (company's projection) for FY 9806 and FY 9906 respectively. The offer price of Rs 90 discounts them 24 and 10.3 times respectively.
Cybermate, which has till now been offering IT solutions to clients like Nagarjuna Construction, Krupp Industries, Apple Laboratories and Godavari Drugs, proposes to set up a 100% EOU at L & T Hi-tech City, Hyderabad, over an area of 8500 sq ft, and a marketing office in the US. Having achieved sales and net profit of Rs 1.62 cr and Rs 14 lac respectively for FY 9803, and orders worth Rs 4.2 cr on hand, the company projects sales and net profit of Rs 4.27 cr and Rs 47 lac for FY 9903 and Rs 9.75 cr and Rs 1.81 cr for the year ending Mar. 2000. On the post-issue equity of Rs 8.19 cr, the EPS works out to Rs 0.6 and Rs 2.2 respectively. The offer price of Rs 10 discounts these earnings 16.7 and 4.5 times.
Both the scrips will not be listed on the BSE or NSE due to their small equity base. While KPIT is proposed to be listed on the Pune, Ahmedabad and Hyderabad stock exchanges, Cybermate will be listed on the Hyderabad and Bangalore stock exchanges. In future, however, both the companies may seek listing on BSE/NSE as their market cap grows.
With the current frenzy for software stocks, the industry composite P/E (for small-medium companies) has ballooned to 25, and keeping this as a standard, both the issues will look attractive. KPIT has good potential to be one of the front-line software stocks in the long run. Cybermate is more appropriate for venture capital, but then, in India, traditional investors also act as venture capitalists, and punters do reward them with fantastic returns even on listing, provided one exits in time.
(Courtesy of CMOTS) |
