Small Wonder

Many small tech companies have bounced back on the bourses. A look at what investors should do about them

After the carnage in technology stocks for the better part of last year, many have bounced back with vengeance.

The new year has witnessed a renewed optimism towards the once untouchable small-sized technology companies. Some of the relatively smaller companies have appreciated by more than 100 to 150 per cent in the past couple of months. What's more, the upside in price is accompanied with a steep jump in volumes indicating a lot of trading interest at some of these counters.

Here, we look at some of these companies that have attracted lot of investor interest in the recent past. And whether investors should hold on to these stocks or use this opportunity to book profits.

KPIT Infosystems

The Pune-based KPIT Infosystems has shot up by over 100 per cent to Rs 80 levels in the past one month alone. After announcing impressive results for the fiscal ended March 2001, KPIT was one of the first few smaller companies to come out with a profit warning early in the year.

The company had reported that the growth in next few quarters might be hit as some of the customers have decided to reduce the onsite component on account of their reduced IT budgets. Consequently, the scrip was hammered down to a low of Rs 20 levels.

Meanwhile the company finetuned its strategy to focus on three verticals --banking and finance, software products and manufacturing. The management also worked on building competencies in areas like data warehousing and business intelligence, embedded and real-time systems and application integration.

It made a conscious effort to shift focus from the previous high-cost, low-margin activities to higher-yielding activities, like Internet technology solutions and offshore development services. The strategy also included significant steps like efforts to prune down tie-ups with other IT companies for its US business, which essentially consisted of staffing services.

The management's decision to refocus on business projects and develop long-term relationships with large customers seems to have paid off. While almost all smaller companies are struggling for survival in the prevailing conditions, KPIT has shown a positive growth in the last quarter ended September 2001.

For the quarter, the company reported gross revenues of Rs 12.30 crore and a net profit of Rs 63.43 lakh. This represents a growth of 7.5 per cent in the topline as compared to the same quarter last year. However, the continued pricing pressure led to a decline of over 38 per cent in the company's net profits.

At the current price of Rs 83.95,the scrip is trading at a discounting of 13 times its earnings which appears to be quite stressed. The recent rally offers a good opportunity to book profits. Moreover, technical corrections could be used to enter the stock for trading gains.

Salora International

Salora International, the flagship company of the Rs 1,000 crore Jiwarajka group, has immensely benefited from the upsurge in demand in the consumer durable industry in general and television sales in particular.

The exit of Aiwa from the Indian market augured well for companies such as Salora which are largely focused on the low price segment. Moreover, the company has been able to penetrate the fast-growing southern market which accounts for about 50 per cent of India's consumer durable market.

The company also hopes to gain from the recently concluded expansion of the electronic components manufacturing facilities. The company manufactures electronic components such as fly back transformers, deflection yoke (in technical collaboration with Kyushu Matsushita of Japan) and loudspeakers (in technical collaboration with Fosters of Japan) which are used in both televisions and audio systems. Leading television manufacturers like Philips, Samsung and others recently approved some components manufactured by Salora.

This apart, the company is looking at opportunities in overseas markets. The management is already negotiating with Panasonic worldwide to supply transformers. The company expects the components sales to grow by 100 per cent (in volumes) for the current fiscal.

Salora International has promoted three joint ventures -- Jadoonet.com Ltd., Encompass Software and Systems Pvt. Ltd., and FX Infotechnologies Ltd., to refocus its strengths in the emerging opportunities in convergent technology products and services.

The scrip has appreciated considerably in the past few months, moving up to the Rs 45 levels from Rs 12 in September last year. The scrip is currently trading at Rs 44.10 and iIt would be advisable to wait and watch for the company's quarterly results for the last quarter before making an investment decision. Analysts expect the company to perform well in the second half of this fiscal.

Sierra Optima

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