Paradyne Infotech: Should You Buy?

With the stock markets sizzling post-budget, the public issue market is also
hot. In the next couple of quarters, we shall see a number of IPOs from the IT
and BPO sectors. During a bull run, every issue might be oversubscribed and,
possibly, quote at a premium. However, in the medium and long term, only
companies that have a solid growth story will provide positive returns.

Paradyne Infotech Limited (PIL) plans to enter the capital market with a
public issue of 33,00,000 equity shares of Rs 10 each at a premium of Rs 32 per
share, aggregating Rs 13.86 crores. The equity shares are proposed to be listed
at the Bombay Stock Exchange (BSE) as well as the National Stock Exchange of
India (NSE). It was incorporated as a private limited company on 5th December
1997 in Mumbai, and was subsequently converted into a public limited company on
28th September 2004. Initially, the company offered system integration and
networking solutions in addition to developing software solutions in Oracle and
D2K technologies.

Paradyne has strategic alliances with Oracle, Sun Micro Systems, Veritas,
IBM, Acer and Microsoft, which helps the company in extending its service
offerings. Its clients include JM Morgan Stanley, State Bank of India and IDBI
Bank in the banking and finance sector; Reliance Infocomm, Idea Cellular, MTNL
and Hughes telecom in the ISP and telecom sector; Reliance Industries, Exide
Industries, Globus Stores, Oil and Natural Gas Corporation, and IPCL in
manufacture and retail sector; and Geometric Software Solutions, KPIT Cummins,
Zycus Infotech and 3D PLM Software Solutions among software companies.

Over the years, PIL has developed two products called HrWorQ, a suite of
HRIMS offering services such as payroll, recruitment and training management,
employee information management and administration, in addition to a suite of HR
services. The other product, FinWorQs, is a centralized banking solution
available on multiple platforms like Solaris, Linux, Windows and uses the Oracle
RDBMS. The company's business is spread along four SBUs: software services,
managed services, systems integration, and BPO services.

Paradyne has been promoted by Annand Sarnaaik, 36, a Bachelor of Engineering
in Electronics and MBA from Jamnalal Bajaj Intitute of Management, with
experience of more than 12 years in the IT sector. He is the managing director
and the CEO. It has a wholly owned US-based subsidiary, Sundune Corporation,
which was primarily setup to market and to support implementation of its
products in the US market. In addition, the subsidiary also provides consulting,
engineering, programming and technical services to the computer hardware and
software industry. Another subsidiary is Intercon Management Services, wherein
Paradyne holds 99.70% of the equity, and is into providing management
consultancy in the field of industrial, commercial and administrative
activities.

For the financial year ended March 2004, the company had healthy results to
show. Revenues grew 45% to Rs 51.1 crore. The net profit for the same period
stood at Rs 2.7 crore as against Rs 0.3 crore in the previous fiscal. Revenues
for the system integration SBU contributed the major chunk (83%) of the total
annual revenues, up 39% as compared to the previous year. The software service
business unit registered a 111% growth with revenues of Rs 6.5 crore in the
previous fiscal, contributing 13% to the total revenues. The managed services
unit contributed the balance 4% of the revenues amounting to Rs 2.1 crore, up
32% as compared to Rs 1.6 crore in the last year. The employee strength of the
organization stands at 119, with 92 employees in software development, 15 in
sale and marketing and the balance 12 as support and administration staff.

The issue price of Paradyne, at Rs 42 per share, works out to about 6 times
its projected earnings for the year ending March 2005. Currently, almost 80% of
the company's revenues comes from system integration, which is a highly
competitive area. And sales from other segments is limited. While there is some
scope for appreciation in the short term, going by the performance of the
company until now, it does not merit long-term investment. Avoid.

Sushanto Mitra