Kale Consultant's revenues have taken a hit in the third-quarter because of the cut in IT spending on the account of Y2K fears. And, for the full-year, the company is unlikely to achieve the estimated revenue growth rate of 64 per cent. Net profit should, however, be on track - around Rs 7-7.5 crore.

Says chairman Narendra Kale, ``Even though we did not have any Y2K exposure, we got hit because of the worldwide cut in IT spending and a postponement of non-Y2K services. Being primarily a product-based company, the affect on us was very severe.'' However, he adds, ``We see FY 2000 is a year of preparing ourselves and getting the management team, funds and infrastructure in place for an orbital change. Fiscal 2001 will be a year for top-line growth, while doing investments in products, processes and organisational building. In the ensuing fiscal, we will see top and bottomline growth as our orbital change begins to pay off.''

Kale Consultants, which is already in the high-margin product business, is seeking to move up the value-chain by concentrating more and more on products. In the current fiscal, for instance, around 64 per cent its revenue came from products compared with 51 per cent last year.

Kale Consultants has three main operative areas - airlines, finance/banking and healthcare. In airlines (a high-growth, high margin area), the company has developed a suite of products for passenger revenue accounting. Praxis, and Apex have been Kale's cash-cows. More recently, the company has launched RevERA - an automated accounting package for medium-sized airlines. And, the latest addition is FareGAIN - a revolutionary product that provides airlines the capability to recover revenue losses due to violations of fare conditions by travel agents.

In the airlines segment, Kale has a pre-eminent position. In banking, Kale's Plutus family of products offers complete solutions for all aspects of banking operations - retail, wholesale and trade finance. The other product, launched recently, is WINBANK, which is India's first shrink wrapped product that covers all the core retail banking functions. Although competition is intense (Infosys is a rival), Kale figures in the top five.

In healthcare (a high growth potential segment), Kale has developed Incare, which is a comprehensive solution for the management of hospitals. The latest foray is CHIRAYU, which a solution for this vertical that enables interaction through the web. Yet another division, which has been created recently, is the co-operative sector. Beginning with big co-operatives in Maharashtra, the company plans to target other states as well with a customised Plutus model. Besides, the new dairy product is also ready for trials.

Kale's products are of relatively high value with per installation licence fee of $ 0.1-2 million (for the airlines industry) and between Rs 5 and Rs 50 lakh (for banking products). Kale's project division, on the other hand, is more horizontal, covering the whole gamut of the value-chain - from on- site services to offshore projects, turnkey projects and consultancy. The segments include the moderate-return segment of client server, migration, euro-conversion to the high-return areas of iWeb technology as well as IT consultancy. With the Internet becoming the thrust area, Kale, too, has set up an web division to enable e-products, e-services and e-delivery.

Interestingly, Kale Consultants's geographical break-up revenue throws up a non-US centric model unlike most of its peers in the country. While most of the software companies are focussing on the US, business from Australia and New Zealand comprise 42 per cent of Kale's total revenues. The US and Europe comprise 12-13 per cent each. What this actually means is that Kale focuses on a relatively low-competition area. That, in itself, bodes quite for the company, but, on the flip side, a slowdown in the Asia Pacific region (akin to what happened in 1997) could have a trickle-down impact on this region, too.

It's probably to avoid such a situation that Kale is planning to look at markets in Africa and the Middle East. The company plans to forge a host of strategic alliances for a foothold in these regions and also take-up the co-development of vertical niche market solutions.

Financially, the company has been growing fast. The only black-spot in the balance-sheet is the Q3 performance, where the bottomline has been propped by the other income of Rs 4.02 crore. This is primarily on account of the interest earned during the initial public offer. Minus this, the bottomline would have taken a real hit. For the nine months, the company has earned a net profit of Rs 4.28 crore on an income of Rs 17.44 crore. For the full year working, net profit is likely to be around Rs 7-7.5 crore, which on the expanded post-IPO equity of Rs 11.5 crore gives an earning per share of Rs 6-6.5. This discounts the current market price of the scrip by a PE multiple of 79.3 - a decent valuation considering the industry average. Accumulation could be considered at declines. If you're holding the stock, stay invested for 1-2 year period to reap the benefits of the "orbital change".

--Nandita Datta