Aftek Infosys: Still Going Strong

Majority of software companies have been complaining about margin pressures
ever since 9/11. With the big companies lowering rates for large orders, a
ninepin effect was felt across the industry. The operating margins for most
software companies hover around 25-35% though the rates for both offshore and
onsite are now stabilizing.

However, due to lower competition, companies that operate in some niche areas
are typically able to deliver better margins. This is especially true for areas
like embedded software and CAD. Another reason for higher margins of product
companies is that their revenues are not head-count driven. Mumbai-based Aftek
Infosys is one such company that operates in niche areas and also has a
significant revenue contribution from products. Consequently, the company has
consistently achieved higher margins than its peers.

Aftek Infosys (Aftek) was set up in 1986 by five IT professionals, all
ex-employees of PCS, and originally transacted in the distribution and servicing
of computers and microprocessor-based peripherals. Previously known as Aftek
Business Machines, the company changed its focus from manufacturing of PCs and
other products to developing software products for export purposes in addition
to providing applications development services. Aftek's current equity stands
at Rs 10 crore, with promoters holding 13%, institutional investors 14%, the
public 19% and the balance 54% by others.

Fact Sheet

www.aftek.com

“Aftek House”, 265, Veer Savakar Marg, Shivaji Park, Dadar (West), Mumbai 400028 Tel: +91-022 4461250, 24454017 Fax: +91-022 4603628

Area of Specialization Software services

and products in embedded, mobile, systems and web

Consolidated Revenues (June 2004) Rs 138.9 crore

Offices India, USA

Listing (Stock Exchanges) BSE, NSE and Luxembourg Stock Exchange

Face Value Rs 2 per share

52-Week High/Low Rs 148/43

BSE Code 530707

NSE Code AFTEKINFO

Aftek's product division has software-based products like Personal Data
Assistant, pre-paid smart cards and barcode readers, which are used by
corporations in the transport, automation and the banking sectors. One of the
company's main products is the enterprise UPS management solution called
Powersafe, which is sold along with the network products of Computer Associates,
its certified development partner. Aftek has other products too and its two
development centers are located in Pune and Solapur.

For the financial year ended June 2004, Aftek reported impressive revenue
growth amounting to Rs 139 crore, up 51% as compared to Rs 92 crore for the
financial year ended June 2003. The operating profit for the same period stood
at Rs 60.6 crore as compared to Rs 42.5 crore in the previous fiscal, a 42.7%
rise. Net profits were Rs 47.3 crore, up 12% as compared to Rs 42.2 crore in the
previous fiscal year.

Aftek's performance for the third quarter ended December 2004 showed a
steady growth with revenues growing 12% sequentially to Rs 45.8 crore as
compared to Rs 41.1 crore. On year to year, revenues grew 30% as compared to Rs
35.1 crore. The net profit for the same period was Rs 16 crore, up 11%
sequentially as compared to Rs 14.5 crore and up 25% to Rs 12.9 crore as
compared to same quarter last year. Revenues from software services contributed
a major chunk for the quarter ended December 2004, about 85%, amounting to Rs
39.1 crore, up 14% and 46% as compared to Rs 34.2 crore and Rs 26.9 crore,
sequentially and y-o-y basis respectively. In contrast, exports of software
products fetched revenues amounting to Rs 5.4 crore witnessing a decline of 2%
and 21%, sequentially and y-o-y respectively, contributing 12% of the total
quarterly revenues. Sale of software driven products contributed the balance 3%
of the quarterly revenues amounting to Rs 1.4 crore.

During the quarter, the company joined hands with California-based Asera to
expand its engineering services to include development and support of solution
applications that utilise and extend Asera's eBusiness offerings. Aftek
planned to make foray in the overseas market via the GDR/ADR route on
public/right issue/private placement basis for a sum of $20 mn or equivalent
thereto in Indian/other currencies.

Aftek is looking to increase its 56% stake in Germany-based Arexera
Information Technologies to 100% in the near future. Arexera Information
Technologies acquired a 56% stake in Seekport Internet Technologies, an Internet
search engine company, which recently formed the UK subsidiary, Seekport
Internet Technologies UK. The UK-based subsidiary would provide users with a
higher quality and real alternative to US-centric search engines.

Going ahead, the company plans to leverage on its expertise in embedded,
mobile and web technologies to provide solutions for the mobile world by
particularly focusing on J2ME, and Java platforms for mobile applications as
well as GPS, GSM and WAP for wireless delivery on the PDAs and wireless devices.
The company plans to open a branch or a subsidiary in Europe to expand into the
European market.

Aftek currently trades at Rs 80, discounting the projected June 2005 EPS by 6
times and June 2006 EPS by 5 times. We had recommended this stock in January
2004 and the stock has appreciated by almost 100%. Considering its strong growth
prospects and intellectual property ownership, we continue to retain an
outperformer rating on the stock. Outperformer.

Sushanto Mitra The
author is the founder of Technology Capital Partners The views reflected here
are of the author and not of this publication. No liability is accepted for
losses based on the information presented here