The current euphoria over software stocks may not last long and it is a matter of time before a shake-out takes place in the industry. However, so far, those software companies (good or bad ones), who tapped the market, have given excellent returns in the short-term. And Logix is yet another software IPO which has the potential to give impressive returns in the short-term. However, holding on to the stock for medium to long-term may be a risky proposition.

Based on the 1999-earnings, the offer is at a price-earning multiple of 10.21 which seems to be attractive. Based on Logix's annualised EPS for the current fiscal, P/E is even more attractive at 1.42. In fact, the bookvalue of the company is Rs 17.84 compared with the offer price of Rs 20. On the expanded equity of Rs 5.1 crore, EPS works out to Rs 3.94 (projected). This discounts the offer price of Rs 20 by a multiple of only 5.

Logix is concentrating exclusively on SAP related services and that too, in selected countries. Now, the company, which is the first major venture of its promoters, plans to diversify into other areas like Internet-based training, providing solutions in Siebel/Peregrine products and extending area of operations to USA.

In its four years of track record, the company has been operating on a very low profit margin till fiscal 1999. This is in sharp contrast to the fact that software industry is a high margin business. During fiscal 1996, the company recorded net profit of Rs 7,000 on a total income of Rs 85.8 lakh, which gives a net profit margin of 0.15 per cent. In the following fiscal, net profit improved to Rs 7.77 lakh on an income of Rs 6.29 crore (NPM 1.22 per cent). In 1997-98, net profit went up further to Rs 11.15 lakh on a total income of Rs 5.57 crore (NPM 2 per cent). For fiscal 1999, too, net profit margin remained low at 4.93 per cent (net profit at Rs 30.23 lakh on income of Rs 6.13 crore). However, the unaudited results for the first quarter of the current fiscal show a sharp rise in net profit. On a total income of Rs 2.7 crore, net profit saw a quantum jump to Rs 70.44 lakh. This gives a net profit margin of 26 per cent.

For fiscal 2000, the company is projecting a major turnaround in its performance. Total income is projected at Rs 12.51 crore. Of this, software and ERP consulting division accounts for Rs 11.89 crore. Net profit is projected at Rs 2.01 crore. The company has bagged export orders worth Rs 8.24 crore from Al Futtaim of Dubai, National Cement Company of Dubai and Safra Co of Saudi Arabia.

The company is a consulting partner with Siebel Systems, a value-added re-seller for Peregrine Systems of USA and Hummingbird Communications Ltd of Canada and implements SAP in association with SAP Arabia in Middle East. Logix is now entering the e-commerce market by launching its internet-based training product for ERP training. The company is also expanding its business by setting up overseas offices in USA and Middle East and increasing capacity of its existing offshore software development centre at Bangalore. Besides, the company is repaying debt to the tune of Rs 70 lakh. The project cost is estimated at Rs 6 crore.