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With an order-book position of US 140 million and a PE of only 30, Pentafour Software amp; Exports is an attractive bet. The 20 per cen...

With an order-book position of US 140 million and a PE of only 30, Pentafour Software amp; Exports is an attractive bet. The 20 per cent correction from its April 1 level of Rs 1329 is a healthy sign and an entry into the stock at Rs 950-1000 can bring good returns. Pentafour is expected to announce its full-year results on April 28 and in anticipation of a liberal bonus as well as a 55-60 per cent growth in bottomline, the current downtrend could see a reversal. Till then, accumulation at every downslide is advised.

What sets Pentafour apart from most of its software rivals is its thrust on multimedia. The multimedia division8217;s contribution to Pentafour8217;s turnover has risen steadily over the years 8211; in the first nine-months of 1998-99 it stood at 54 per cent Rs 72.56 crore compared with 45 per cent in the last fiscal. Says a software analyst with a Mumbai-based brokerage, 8220;Multimedia is one of the fastest growing segments in the US thanks to huge orders from Hollywood. This pace in growth in multimediaand computer-aided designs, should catapult Pentafour on a new growth trajectory in the coming years.8221;

With animation motion films based on a world-famous character like Sindbad under its belt, Pentafour is gearing up for more. Lined up for a Spring release by Warner Brothers is the animated version of King amp; I8217;, while work on Ali Baba and Forty Thieves8217; will begin soon. Pentafour is also focusing on Bollywood8217;s unsatiable appetite for special effects after its debut with Jeans8217;. Added to this is the cable television boom in India and the sops given to the entertainment sector in the Budget. Pentafour has already ventured into serials for Enadu TV and hopes to cash in on the surge in demand for soap-operas as well as music videos and CDs.

Another area where Pentafour scores over most of its competitors is employee attrition. 8220;Apart from offering attractive pay-packets, the company has set up an ERP training institute for its employees which keeps the attrition rate at manageable levels, besidesproviding the benefits of backward integration like body-shopping for ERP professionals,8221; says Parag Dalvi of Pranav Securities. Besides, Pentafour does not have a large exposure to Y2K and Euro projects and would, thus, be spared the cost of re-training and re-deploying its staff once orders start petering out. At present, earnings from Y2K and Euro comprise only 5 per cent of the total turnover.

ERP is another growth area for Pentafour. The company derives around 30 per cent of its income from this booming business. Pentaworks, the company8217;s ERP software, supports most standard RDBMS like Sybase, Oracle MS-SQL Server, etc and is targeted at small and medium-sized enterprises. ERP clients include TVS-Suzuki, Shivaki Watches, KBZ group, Rubfila and Span Eicher as well as Illinois Tool, USA, Sphere International, UK, Tru-Solutions, Japan, etc. The order-book position for the ERP division is 43.95 million to be executed in 15 months.

However, despite Pentafour8217;s good business profile and ideal productmix, the company continues to feel the pinch of a bad management8217; perception in the market. 8220;Lack of transparency and rumours of FD defaults bother marketmen and Pentafour8217;s low discounting compared with its rivals like Infosys and NIIT is a result of this,8221; says an NSE dealer. Adds another NSE broker, 8220;Although the company has re-organised its management practices over the past one year, the market remains unconvinced. Also, being an excessively speculative stock, the counter is prone to a high-degree of volatility on rumours.8221;

The other problem, say brokers, is Pentafour8217;s clientele. 8220;The company has never had a tremendous clientele unlike Infosys or NIIT. For example, it is yet to bag an order from a Fortune 500 company. As Pentafour focuses mainly on the lower-end of the business ladder, its clients are usually small or medium enterprises,8221; says Dalvi, adding that the company had consciously never attempted an image-building exercise in India. For a software company, Pentafour has a highleverage. Compared with NIIT8217;s 0.29 and Infosys8217; zero debt, Pentafour8217;s debt-equity ratio is high at 0.50. In the nine-months of 1998-99, its interest burden was Rs 24.71 as against Rs 24 crore for the full-year 1997-98.

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However, this could change soon as Pentafour plans to use the proceeds of the recent preferential allotment to repay the Rs 150 crore high-cost debt, which includes foreign currency borrowings. The preferential allotment of 29 lakh shares with FIIs and domestic institutions has fetched the company Rs 205 crore. Pentafour8217;s EPS should spurt to Rs 53 from Rs 40 at present assuming a net profit of Rs 106 crore in fiscal 1998-99. At that level, Pentafour8217;s discounting turns even more attractive.