Based on the annualised earnings in the first-half of FY 2000, the equity offer from Avantel is at a PE of 20. At the same time, Telesys' offer is at a PE of 6 (based on an annualised EPS of Rs 2.5). The pricing of both the issues seems justified as the average PE for medium-small software companies is around 25-30. In the case of Avantel, the fact that DoT will continue as the single largest customer of Avantel Softech should weigh in the minds of investors. Although Telesys' offer PE is way below the industry PE, which leaves scope for decent capital gains in the short-term, the company is yet to establish itself in the software field.

Avantel's IPO looks more promising as around 61 per cent of its revenue is expected to come from its existing telecom operations (where DoT is the main customer), while 38 per cent will be through the software business. Also, the stock market fancies telecom software. While Avantech Softech has a natural synergy in communication software, the other target area - enterprise resource planning - has been witnessing a slowdown in rcent years. The forays into Internet, e-commerce and embedded technologies should, however, stand the company in good stead.

Avantel Softech mainly operates in wireless products, network access products and software products/services. Avantel began by producing RF/microwave components for Defence labs and later forayed into multi-access rural radios for DoT. The company has also developed an Insat-based C band mobile satellite services - this hand-held device can transfer information from any remote location, the first of its kind in the country. With the onset of Internet and demand for increased band-width, the company ventured into HDSL modems - which has found ready acceptability from DoT, MTNL and a host of private operators. The company is in the process of developing a new SDH product and high-speed datalines.

In the software sector, Avantech has decided to focus on four major areas - ERP, communication software, internet solutions and e-commerce. In ERP, the company offers customised services and has developed a product for the SMEs. However, there has been a slowdown in the ERP business and Avantech will be impacted to that extent.

In communication software, the company focuses on network management and embedded software. In Internet, the company is in the relatively low-end business of web enabled databases. Avantech is also into e-commerce, wherein it focuses on vertical segments banking and finance and retail distribution.

In FY 1998-99, the company posted a turnover of Rs 8.29 crore and a profit of Rs 44 lakh. In the first-half of FY 2000, the company's turnover stood at Rs 1.78 crore and considering that it has orders in hand from DoT, MTNL and others amounting Rs 8 crore, the full-year figure should be around Rs 10-11 crore.

Telesys Software was established in 1993 with a data centre at Madras. Promoted by S R Kamath and Vatsala R Kamath, the company has started providing customised software to industries as diverse as hotels, hospitals, education institutions and transport industry. Currently, the company has two development centres in Chennai with about 50 software professionals.

Although Telesys Software claims that it has been in the software business since 1992, the company has so far implemented only small projects like total automation of a 100-bed hospital, on-line reservation and billing system for a medium sized hotel and production management system for a textile company. The company also provides consultancy services to corporate for optimal utilisation of e-com, CAD/CAM and GIS solutions.For fiscal 2000, the company claims to have undertaken seven jobs of hospital automation with a total value of Rs 19.4 lakh, four jobs of school and management institution software with a total value of Rs 9.5 lakh andthree jobs of hotel management software worth Rs 9 lakh.

The company has now drawn up a Rs 10.47-crore project for expansion of software development facilities, development of software products having applications in financial and service sector, market development and meeting margin money for working capital. Till 1997-98, the company has been operating on a low profit margin. For fiscal 1999, net profit saw a quantum jump to Rs 32.99 lakh on a gross income of Rs 84.59 lakh, which shows a dramatic improvement in margins at net level.