For the quarter ended September 2000, the company's top line has grown by 84.1 per cent to Rs 7.4 crore. However, a look at the expenditure components shows an interesting story. Among pure software services companies such as Infosys and Satyam, staff cost accounts for around 40 per cent of the income from operations.

In the case of Aftek, it is only 10 per cent. But other expenditure is nearly 50 per cent of the turnover. The large expenditures on other counts may be attributed to the high marketing costs. As a result, total expenditure has gone up by 95 per cent to Rs 4.5 crore.

Operating profit has moved up by 69.8 per cent to Rs 2.9 crore, but operating profit margin (OPM) has dipped to 39.5 per cent (42.8 per cent). Being a software company, interest and depreciation do not affect the bottom line significantly. Net profit has jumped to Rs 3.5 crore from Rs 1.51 crore, helped by other income of about Rs 1 crore.

Among the technology stocks, product companies figure even higher on the risk-return scale. The past year was a fruitful one for Aftek Infosys. The integration of `Powersafe', a web-enabled management system with Unicentre TNG, an Enterprise Network Management System (ENMS) product of Computer Associates, was a major development. Besides, Aftek has entered into partnership with Aether Software to jointly develop online transaction-based information product that can be displayed on hand-held devices such as palmtops.

In offshore software services, Aftek has focussed on embedded software, systems software, Internet and Intranet applications. In the area of embedded software, it is presently involved in a project for Jedi Technologies, which is developing a co-processor that is likely to help Java applets run faster. Though the upside for the stock from the `products' business remains fairly strong, the risks associated with the stock are also fairly high. If the product penetration efforts do not succeed as expected for any reason, then the earnings may be vulnerable to sharp volatility. Further, the risks associated with dependence on Computer Associates (likely to account for a substantial portion of its revenues) as a single client through the sale of `Powersafe' may be fairly high.

Knoll Pharmaceuticals
Knoll Pharma, the eighth largest pharma company in the country, has a number of best selling household brands such as Digene, Cremafin and Brufen under its belt. It has posted impressive results during third quarter ended September 2000. Sales increased by 16.3 per cent to Rs 90 crore. The number of new products in its range has gone up, besides extension of existing drugs. The five new major products in different therapeutic segments are: Thyronorm (a drug for hypothyroidism), Nuclav Duo (for respiratory tract infection), Epilex 500 (for treating epilepsy), Novyolet (a prefilled insulin delivery device) and Cremaffin plus (for severe constipation). These new products have been well received in the market.

Total expenditure was up 19.3 per cent to Rs 77 crore as a result of the higher expenditure on traded products. Manufactured products account for 60 per cent of the total sales and the rest from traded products. The sale of the Sion plant last year has compelled the company to pay greater attention to traded goods. As a result of higher expenditure, operating profit margin fell to 17.5 per cent (19.9 per cent). The company benefited from the second installment of Rs 13.16 crore as part-payment from sale of Sion plant. After accounting for extra-ordinary item, the company registered a net profit of Rs 23.3 crore.

Knoll Pharma has nine brands among the top 300 brands. The top nine brands alone contribute more than Rs 206 crore per annum out of the total annual turnover of Rs 291 crore. Its largest selling brand is Digene, an antacid. Digene has seen a 16 per cent rise in sales as against 13 per cent sales growth in the antacid segment. The company is a market leader in insulin products and commands a market share of more than 60 per cent. The total insulin market is growing at the rate of 20.5 per cent. The company introduced new anti-epileptic drugs. Anti-epileptic segment has a robust growth of 25 per cent and new line extension introduced in the previous year will give advantage in the near future. Knoll Pharma has no debt and can benefit from low interest outgo.

Manish Joshi and Dhruv Rathi