Promoted by a team of six hard core professionals led by Ravi Pandit, who is also a reputed name in the audit-profession in Pune, KPIT came out, only last month, with a public issue of 12.90 lakh equity shares of Rs 10 each at a premium of Rs 80 per share. Significantly, there were no reservations for any special class of investors like financial institutions, banks, FIIs and such others, in the issue. Post-issue, the equity stands at Rs 5.16 crore.

A close scrutiny of the basis of allotment of the KPIT issue only goesto confirm the newfound market obsession from small and bulk investors for infotech stocks. In the small shareholders category of those applying for 1000 shares or less, the issue attracted 50,723 applications for 1.42 cr shares. In other words, at this stage itself, the public offer was oversubscribed by about 10 times! At the end of the allotment, only 6,461 of the small applicants have succeeded in getting 100 shares each.

More than 87% of the small investors were a disappointed, or, unlucky lot. For the bulk applicants, 50 per cent of the issue, or 6.45 lakh shares were reserved. But the company received 903 applicants for whopping 3.96-crore shares, reflecting truly the interest evinced in the scrip by the speculative big-bulls. The biggies alone clamoured for over 60 time their quota. Interestingly, there were seven large applications, each one, with a financial commitment of Rs 11.61 crore, vying to corner the entire public offer of 12.9lakh shares to oneself! As in the past, is it another newfashion, or a trick to whip up an euphoria in the market? Surely Sebi can find the answer, but will it?

Meanwhile, the big seven, in the end, bagged the super slice of allotment: 21,000 shares each. If the allotment to the big seven is excluded then the average allotment works out to a low of 163 shares per successful applicant. Overall, the issue was oversubscribed 40.7 times by the public. But, where 50,000 competed only 14 per cent or about 7,000 of them have had luck. For every hundred having 86 disappointed investors could imply a pent-up demand for the scrip on the bourses.

The high current market price, however, could dampen the demand. Therefore, mostly the holding power of the speculators, shrewdly calculated on the manipulative volatility of the market sentiments, would dictate the future course of trading and price line on the KPIT counter.

As if confirming this, already the market grapevine is fueling the KPIT scrip by a derived inspiration from the success of Sonata Software Ltd (SSL). WhatSSL had hawked at Rs 90 a piece in last December is currently hovering around Rs 415 on BSE. Still, does KPIT's fundamentals really justify such a steep valuation tag? Unlike many new infotech entrants, KPIT is driven by highly qualified technocrat-promoters under the banner of Kirtane & Pandit, a chartered accountancy firm in Pune with a standing of over 50 years.

In software circles, the company appears to be reasonably well known especially for its specialty software package in Enterprise-wide Resource Planning (ERP) consulting. Presently KPIT provides software services, products and other allied packages to mostly overseas clients. In terms of financial performance, between the 15-month period ended June 1994 and the year ended June 1998, KPIT's turnover increased from Rs 2.13 crore to Rs 16.01 crore. In the same period, the net profit moved up from Rs 0.19 crore to Rs 1.90 crore.

In terms of both turnover and profitability, sustained improvements were visible during this period, except for anaberration of lower net profit of Rs 1.01 crore in 1996-97, as compared to Rs 1.09 crore recorded in the previous year. For the latest year ended June 1998, KPIT's reported profitability translated into an EPS of Rs 5.15. In all, though the company has carved up a reasonable growth curve in the last five years, as can be seen, the going is not so overly exciting as the speculators and market operators would like us to believe.

For the current year, the company has projected a net profit of Rs 4.50 crore on a turnover of Rs 27.14 crore. Based on its net profit of Rs 0.62 crore on a turnover of Rs 4.55 crore in the first quarter ended September 1998, the projections for the current year appear to be too rosy. Even if the projected profitability were ultimately achieved, it would only result in an increased-equity diluted EPS of Rs 8.72.

The present market price of Rs 335 a share on PSE discounts its expected earnings about 38.4 times. Of course, in the market there are candidates presently discounting theirEPS over 152 times as in the case of Mastek and Visual Soft. On the other hand, Infosys, the most fancied software scrip of our times, is discounted only 132 times. At the lower end we have Orient and Pentafour with P/E at or above 22. So what the upper or lower limit is quite unclear. However the suggested market thumb rule could be to take 20 as the standard P/E of the industry and discount it for the next three years. In a fast changing industry, a horizon of three years' earnings is considered by experts as the safest zone of prediction.

That gives us a P/E of 60 as the Lakshman rekha to judge the safest earning potentiality of any very promising software scrip on the bourses. As for the future, KPIT's management is confident of achieving a growth of over 60% a year, presumably over the next three years, both in turnover and profitability.

Well, that is a tall order given its limited bandwidth and poor brand equity. Industry circles wonder whether KPIT with its present trump on hand -- thenot-anymore-so-hot ERP package -- can sustain at all its existing tempo of growth. Besides, past experience shows that a boom time P/E of 40 times is not worth even 4 times during the depression. Obviously, KPIT too can not be an excption to this phenomenon, can it? For the present though, it is quite a boom time for KPIT shareholders.