The stock has already appreciated by 8 times since January 1998. At current levels, it has come down by about 17 per cent from its peak of Rs 630 reached in September 1998. On an estimated EPS of Rs 46.3 for 1999-2000, the stock trades at a multiple of 11.4 and the future growth in stock price will be driven by better financial performance, the report maintains.

BFL's financial performance has been consistent with sales growing from Rs 97 lakh in 1993-94 to Rs 27.88 crore in the first-six months of 1998-99, a compounded annual growth rate of 175 per cent.

The operating profit margins of the company, which had declined from 43.3 per cent in 1994-95 to 13.1 per cent in 1997-98 (adjusted for write-offs of over Rs10 crore), have improved post-restructuring to 32.2 per cent in the first six months of 1998-99.

To meet the growing business needs, the company is setting up two new development centres in Bangalore, taking the total to 5 by the end of 1998. The sixth centre, also in Bangalore, will have a capacity to house 1000 people.

Business from ING Barings, it is the largest IT outsources in Netherlands, apart from existing clients and better infrastructure support should enable the company to achieve a CAGR of 80 per cent in sales over the next two years.

Apart from serving existing clients through software development centres, BFL is planning to increase its exposure to the Advance Centre for Excellence (ACE), electronic commerce, Euro projects, consultancy services and product development.

The revenue breakdown for 1997-98 shows that systems development for Compaq accounts for 25 per cent; networking for Hyundai about 10 per cent; applications software for NCR of Japan and Central Bank of Nigeria about 20per cent. Re-engineering products for NEC (Australia), Samsung, Comshare, Peritas account for another 23 per cent while Tandem-related projects for Federal Express contribute 16 per cent.

In 1997-98, around 8 per cent of its revenue came from Y2K related projects. With the deadline coming closer, the proportion of Y2K business to total is likely to go up to nearly 20 per cent in the current year.

The report concludes that financial restructuring and improved transparency will improve valuation of the stock which is currently trading at 20 times its estimated earnings per share of Rs 26.4.