However, considering the parentage (the Rs 200-crore Zenith Computers), the ideal business-mix of software products/services, an impressive client base and business alliances, the premium (of Rs 100) seems justified. Even though Zenith does not operate in the high-end of the software spectrum, it's foray into some of the fast-growing IT segments (estimated to post a CAGR of 40-45 per cent) will help the company carve a niche for itself in the IT industry. And, going by the unsatiated appetite for software IPOs in the market, there is no reason why Zenith Infotech should not command a high premium on listing.

Incorporated three years ago, Zenith Infotech has a presence in fast-growing segments like e-commerce/web-technology, information appliance software and middleware software. According to estimates, the global Internet application and information appliance software segment is slated to grow at more than 50 per cent over the next four years. Much of this spending is expected in the area of integrating back-end systems with Internet and e-commerce components.

Zenith Infotech, by virtue of its experience in executing projects in this area, is in a prime position to carry out such activity. To facilitate easy customer transition to e-business Zenith Infotech has built few components for e-commerce. One such component is buyer-seller syndication, which allows developers to develop buyer-seller matching sites without going through the tedious process of hand coding the logic.

Another area of significant growth identified by the company is e-commerce and web infrastructure maintenance. Companies deriving significant value and revenues from the Internet are looking for companies who can be offshore web infrastructure maintenance providers.

This involves various activities such as database development, web development, operating system maintenance, web page design, script development. By getting into this business, Zenith will derive a regular stream of revenue as these are contracts as long-term in nature. Although margins may not be very high, but there is a steady source of income. Zenith expects over 40 per cent of revenues to come from this segment.

Embedded and information appliance software, yet another thrust area for the company, is estimated to grow from its present $ 1.5 billion market to over $ 20 billion by 2004. With the introduction of new technologies, the market is going through a sea-change. Zenith has started exploring the option of developing software in this area of technology. Keeping in mind the untapped potential of this market, Zenith Infotech plans an aggressive investment in this segment. To begin with it plans to release a version of its `ZenSync' software, which will run on Windows CE devices as well as PalmPilots. This will allow Zenith's customers to synchronize information stored on a mobile unit, with desktop computers and servers.

Middleware software is another focus area for Zenith Infotech. Globally, the segment is expected to grow at a CAGR of 23 per cent in the next 3-4 years. Although by itself, the segment is a relatively low-margin business, it has tremendous synergies with e-commerce. In this segment, Zenith Computers is into client-server engineering, integration, the implementation of high-end transaction processing and database replication solutions. Networking, which was Zenith's initial bread-and-butter activity, continues to be part of the company's business profile. However, it is moving from being only a network integration services provider to on-site and offshore network maintenance as well as management. However, at present, on-site services far outnumber that of off-shore development.

Apart from software services, Zenith Infotech has also forayed into products. It is developing banking products, which will be released shortly. These are Internet banking software and centralized MIS Software for head-office and zonal office reporting. Although the banking software segment is a growing market, it is overcrowded. However, Zenith hopes to use its past expertise in banking software services to market its products to existing clients. As marketing software products normally entails high expenditure, tapping the existing clients is a good strategy.

Zenith Infotech has also developed a product for export promotion councils and trade associations called Net.Council.Com - a comprehensive extranet product for trade associations or export promotion councils to provide all their services to member exporters and importers through the Internet.

Currently, two export promotion councils - CHEMEXCIL and SRTPEC are using this product. Zenith Infotech now plans to market this product to trade associations and councils abroad, particularly in countries like Singapore and the US.

Financially, the company has been grown at a much slow pace than its peers. The 20-22 per cent growth in the last two years is basically on account of the shift in focus from networking to software development. In fiscal 2000, income is projected to grow at 79 per cent to Rs 19.75 crore, which seems achievable considering that company has already earned more than Rs 7 crore in the first-half itself. Profit-after-tax, currently at Rs 2.42 crore, is projected to grow exponentially to Rs 7.72 crore, yielding an EPS of Rs 6.7 on the expanded equity of Rs 11.5 crore. This discounts the issue price by a multiple of 16.4, which is much lower than the industry average. So, there is scope for appreciation.

On the flip side, however, there is apprehension in the market of a clash in business interest with group company, Zenith Computers, which is reorienting itself from hardware to software. Besides, Zenith Infotech currently operates in the low-end of the value-chain (if one excludes the products) and this is the reason for lower margins at the operating level. Besides, the rising SGA expense as a percentage of income from 15 per cent last year to 19 per cent (projected) in FY 2000, could be a cause of concern.

Although this is within manageable limits now, Zenith Infotech must guard against a ballooning SGA expense in the future. The intense competition in the banking software field could also take its toll on the Zenith's revenue from this stream.