Paradyne Infotech (Paradyne), promoted by technocrat Anand Sarnaaik, caters to the banking, financial services and insurance (BFSI) segment in the domestic market. Its wholly owned US-based subsidiary, Sundune Corporation, was set up to market and support implementation of its products in the US market. Paradyne holds 99.70% of the equity of Intercon Management Services, a management consultant for industrial, commercial and adminisatrative activities.
The objects of the issue include spreading Paradyne's operation in other parts of India from Mumbai, Bangalore, Chennai and Delhi, expanding the software development center in Mumbai, upgrading the core banking product FinWorQs and human resource product HrWorQ at a cost of Rs 5.19 crore, setting up a data and support centre, upgrading the research & development lab and quality certification to international standards, and investing in subsidiary Sundune Corporation in the US. To enhance the functioning of the marketing and support base, the company intends to make an investment of about Rs 3.75 crore.
Strengths
- Paradyne's performance in the last two years has been good, with sales rising from Rs 35.40 crore in FY 2003 to Rs 68.56 crore in FY 2005 and net profit jumping from Rs 30 lakh to Rs 5.11 crore.
- The company has a balanced business mix in terms of client-wise distribution of revenues, with no significant dependence on a single client.
- The current aggregate order booking (as on 1 September 2005) is around Rs. 12 crore, comprising following major customers: 3D PLM Software (Geometric Software), Amdocs, Department of Income Tax, J M Morgan Stanley, Acer India, BMC Software, Zensar Technologies, Mandvi Bank, Mercator Lines, KPIT Cummins, and Rochem Separations.
Weakness:
- More than 70% of Paradyne's revenue comes from system integration, which is a highly competitive and low profit margin area. The rest of the revenue is derived from software services and managed services.
- The company's business is focused on the BFSI vertical in India. This makes future success highly dependent on IT spending of banks, insurance companies and financial institutions and continuance of demand for its products and services from these industries in India. Therefore, any structural changes in the BFSI vertical may materially affect business. Further, BFSI is a highly crowded space with a large number of players, both small and large, providing software services and products. This translates into a high competitive risk for the company. In addition, the major market is India, which is a geographical risk.
- The quarterly revenue may fluctuate significantly from period to period in future as system integration and products constitute a major revenue stream. Further, the product business is highly exposed to technology risk.
Valuation
Consolidated FY 2005 EPS on post-issue equity of Rs 10.80 crore works out to Rs 4.7. The offer price of Rs 42 discounts this 8.9 times. If the company maintains its current growth tempo and succeeds in its new products, one can expect gains.