Between October and March, there was no miraculous jump in the company's operational performance to warrant such a price spurt. Then what made Aftek, which was available at affordable prices till the end of 1998, unaffordable in 1999?

Two factors are perceived to be the `driving force' behind Aftek's price spurt in recent months. One is the change in the company's name. With information technology (IT) stocks being the flavour of the year both on the national and international bourses, of late, there has been a desperate attempt by the promoters of some listed companies to change the company'sname in a bid to encash on the craze.

The past few months are replete with some name instances of companies like Asahi Leasing & Finance becoming Sunstar Software Systems, Arihant Housing Finance metamorphosing into LCC Infotech and Paro Steel Industries changing its name to Sanvan Software. Nonetheless, in the case of Aftek, which also underwent a change of name from Aftek Business Machines Ltd to Aftek Infosys Ltd recently, there seems to be genuine justification for the switch.

When the 1986-incorporated Aftek, promoted by a group of five entrepreneurs led by Ranjit Dhuru, made its public foray in April 1995, it was more a product-oriented company rather than a software outfit. In fact, Aftek's core competence then was in the manufacture of IBM-compatible PCs and microprocessor-based peripherals, hand-held devices, add-on cards etc.

As per the offer document, product sales were to be the mainstay of Aftek's turnover in the post-issue years. However, in the aftermath of its maiden public offer,Aftek remained profitable essentially due to the contribution of software development activities. Except for a minor aberration in 1996-97, when the turnover from this segment fell short of the projections by Rs 1 crore, the company consistently exceeded the promise in terms of turnover from software in all other years.

In spite of the reasonably good performance on show on the software development front, if Aftek's overall financial performance over the last few years has fallen way short of its own expectations, it can only be put down to the retrograde direction that the company's product sales have assumed.

Thus, with software development overtaking product sales, Aftek could not have but opted for a new identity. Apart from the change of name, another reason why Aftek has been in the news was the preferential allotment of equity it made on January 25 this year. The company placed 15 lakh shares with Triumph International Finance at a premium of Rs 26.50 apiece. The deal was brokered by Mumbai'sleading brokerage outfit NH Securities belonging to the savvy market operator Ketan Parikh.

The proceeds of the issue are to be utilised mainly for expanding the software development facilities in Pune and for enhancing the special products namely, personal data assistant (PDA). On December 1, 1998, the date of the notice convening the company's AGM in which the relevant resolution was proposed, the Aftek scrip was quoting at around Rs 32. By the time the general body of shareholders actually passed the resolution on December 30, the scrip had reached Rs 45. However, the real push came only in the new year. Apparently driven by the impending deal, the scrip broke fresh ground in January and moved up to over Rs 100 by the time the allotment was finally made.

Post-preferential allotment, the Aftek scrip exhibited a dual character, initially moving up in the post-budget rally to an all-time high of Rs 135 before receding to about Rs 64 when the recalcitrant Jayalalitha brought both the Government and theSensex down in one stroke. However, the scrip now appears to have joined the latest bull onslaught, gaining over Rs 33, or about 52 per cent. In just 10 trading days to May 11, the scrip has flared up from Rs 64 to Rs 97.50. The recent preferential allotment, accounting for 26.13 per cent of the expanded equity, has taken Aftek's capital base from Rs 4.24 crore to Rs 5.74 crore.

The rest of the shareholding is concentrated in the hands of the core promoters (23.17 per cent), IDBI (17.42 per cent) and public (33.28 per cent). Incidentally, IDBI's exposure of Rs 1 crore in Aftek's equity had been under the venture capital fund at the time of the company's public offer, even though the project had not been appraised by the institution.

While IDBI's equity participation indeed lent some credibility to Aftek to begin with, it would be worthwhile to examine the company's financial performance in the post-public issue period. At the time of its public offer, Aftek had projected to achieve a turnover of Rs 4.77crore, Rs 12.90 crore, Rs 17.25 crore, Rs 22.31 crore and Rs 29.02 crore in the five fiscals commencing from 1995. For the respective years, Aftek was to report a bottomline of Rs 0.33 crore, Rs 2.48 crore, Rs 3.19 crore, Rs 4.14 crore and Rs 5.44 crore.

However, as it turned out, except in fiscal 1995, in all other accounting periods the company failed to achieve the projected level of turnover and profitability. In the 15-month period ended June 1996, Aftek posted a bottomline of only Rs 2.21 crore on a turnover of Rs 10.36 crore. As against a pre-issue promise of 15 per cent for the 12-month period, the company finally paid a dividend of 10 per cent and that too for a period of 15 months. In the next 12-month period, Aftek's turnover went down even further to Rs 7.73 crore.

With the net profit too dipping to Rs 1.23 crore for the year, the company skipped dividend altogether. In 1997-98, some what propelled by software development activities, Aftek upped its turnover and profitability by 20 per centand 43 per cent respectively to Rs 9.28 crore and Rs 1.76 crore. It also returned to the dividend list with 10 per cent. In the first nine months of the current year ending June 1999, Aftek has posted a net profit of Rs 2.32 crore on a turnover of Rs 7.85 crore. More importantly, the latest quarter turnover of Rs 3.25 crore has almost fully been from software development activities.

If the company's assertion of notching up a revenue equivalent of US $2 million in the last two quarters of the current year is to come true, the current quarter's performance could turn out to be creditable. Nonetheless, even assuming an impressive performance by Aftek, the final figures for the current year would still be way below its pre-issue projections. In this backdrop, is Aftek's current market price fully justified? Well, in the present craze for the IT sector, a PE of 20 is conveniently applied even for average companies like Aftek. Going by this rule of thumb, Aftek's priceline might seem alright. However, in abear market, even a PE of 5 would seem astronomical. Since discretion is the better part of valour, investors would do well to look for some more consistency in Aftek's performance before jumping on to the bandwagon.

(Arranged by Investar -- The Aarthik News & Research Syndicate)