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	Aztec Software and Technology Limited

Issue Summary

Type
Equity

Size
Rs 520 m

Price
Rs 80

Face value
Rs 3 per share

Bid Opens
12th October 2000

Bid Closes
18th October 2000

Issue Opens
2nd November 2000

Issue Closes
9th November 2000

Shares on offer
2.8 m

Min. subscription
Book Building

Listing
Bangalore, Mumbai and National Stock Exchanges

Lead Managers
JM Morgan Stanley

Promoters
Mr. S. Parthasarathy, Mr. V. Swaminathan and e4e Holdings.

Promoters post
issue holding
***

Background

Book Built Portion

Issue Structure Book Building Portion Fixed Price Portion

Institutional Investor Non-Institutional Investor Retail Portion Retail Investor

% of total size 60% 15% 15% 10%

Minimum Bid/
Application size 1,050 1,050 50 50

Maximum Bid/
Application size Not exceeding book
built portion Not exceeding book
built portion 1,000 1,000

Business

Aztech Software and Technology Limited, incorporated in 1995, is currently engaged in two types of business activities:

E-engineering Solutions
The company provides e-engineering services solutions relying upon its expertise on core database technologies, data warehousing technologies, infrastructure technologies and XML technologies.

Product Development Partner
The company is working with clients like Viador and Embracadero for development of their core products. The company is also working on testing patches for various operating systems for all the versions of MS SQL. Microsoft has provided the infrastructure for setting up this QA service.
The company is currently working on ASP-enabling assignments and B2B exchanges assignments for clients such as Asera and Jamcracker. Most of the assignments are mission critical and cater to the highest end of value chain.
The main objectives of the issue are

To list the shares of the company on one or more stock exchanges and to enable the company to impart liquidity to the Employee Stock Option program
To finance ongoing capital expenditure including setting up of a new development center and new employee training center.
To finance expansion through acquisitions, joint ventures and strategic alliances and upon listing to make future acquisitions using shares as acquisition currency; and
To meet the expenses of the issue

Promoters

Mr. S Parthasarathy is a Mechanical Engineer from the Indian Institute of Technology (Madras) and a PGDM from the Indian Institute of Management, Ahmedabad. He has over 16 years of experience through the early stages of the Indian IT industry both as a professional and as an entrepreneur.
Mr. V. Swaminathan is an engineer from the Indian Institute of Technology (Madras) and has a Master of Science Degree from University of Missouri, USA. He brings over 12 years of direct sales and marketing experience in both the US and international markets.
e4e Holdings Limited (formerly known as Fivess Ventures Limited), is a wholly owned subsidiary of e4e Inc. It was incorporated in Republic of Mauritius in November 1998, as an Offshore Private Company limited by shares.

Sector

Over the last decade the Indian software industry has grown to command one of the most important places in Indian industry. Industry revenues have grown from a mere US$ 50 million in FY89 to about US$ 5.7 billion in FY00, at a consistent growth rate of more than 50% since 1991. According to a study done by McKinsey for NASSCOM, the industry can achieve a turnover of US$ 87 billion by FY08 of which US$ 50 billion are expected to come from exports.
Internet technology is also creating a new business model in computer services arena - Application Service Providers (ASPs). One of the big factors enabling this industry is that the thin client nature of Internet applications makes the applications more readily hosted outside the corporation. As a result, ASPs can host applications and "rent out" usage to clients. ASPs offer clients both cost savings as well as the ability to tap into the best practices using those applications. In some cases, it allows smaller companies access to applications they could not afford on their own.
Currently the size of ASP market is pegged between US$ 2 billion and US$ 20 billion by FY03. The early adopters and targeted markets for the ASP alternative have been small to medium size enterprises (SMEs). It is estimated that there are 300,000 emerging enterprises in the US with revenues of less than US $500 million and IT budgets of US $5 million or less. Moreover, less than 5% of the emerging enterprises in the US will need to utilize an ASP solution to achieve projected market size.

Reasons to apply

As B2B commerce and ASP space provides huge market potential, E-business solution providers like Aztech stand to benefit.

The company has an impressive client list that includes Jamcracker, Microsoft, Asera, Capstan, Netopia, Viador, and Reez.com, to name a few.

The management of the company has strong expertise in the field of information technology.

Reasons not to apply

The cost of the project and means of finance have not been appraised by any financial institution.

The Company has not identified any specific acquisition targets or partners for strategic alliance. Any acquisition by the Company carries the challenge of integrating the people, the processes and culture of the acquired Company.

On the offer price of Rs 80, the share is quoting at 66 times its FY00 earnings, which seems to be expensive, though not comparable with industry peers.

Financial Performance

(Rs m)	FY98	FY99	FY00

Sales	19.1	13.9	136.9

Other Income	0.0	0.6	0.9

Total Income	19.1	14.5	137.8

Expenditure	15.3	21.0	84.5

EBIDTA	3.8	(7.1)	52.4

GPM (%)	19.8%	-	38.3%

Depreciation	6.0	3.2	10.4

Interest	0.6	0.3	1.4

Profit before tax	(2.9)	(10.0)	41.4

Extraordinary item	4.4	(4.4)	-

Less: Tax	-	-	0.4

Net Profit	1.5	(14.3)	41.0

NPM (%)	7.7%	-	30.0%

Issued shares (m)	34	34	34

EPS (Rs)	0.0	-0.4	1.2

P/E (x)	1,832.2	(189.2)	66.1

Please note:
* The estimates of financial performance are those provided in the Issue Offer
Document and are not those of www.equitymaster.com.

Funding

Where the money comes from...

(Rs m) (%)

Public issue 520 100%

Total 520 100%

Where the money will go...

(Rs m) (%)

Expansion of facilities at existing office 144 28%

Construction of new office building 257 49%

Acquisitions and joint ventures 84 16%

Issue expense 35 7%

Total 520 100%

Shareholding

Particulars	Pre-Offer (%)
Promoter group	67
Employees (Trust)	31
Others	2
Public	-
Total	100
The post-issue promoter holding would depend on the issue price

	Business
	Aztech Software and Technology Limited, incorporated in 1995, is currently engaged in two types of business activities: E-engineering Solutions The company provides e-engineering services solutions relying upon its expertise on core database technologies, data warehousing technologies, infrastructure technologies and XML technologies. Product Development Partner The company is working with clients like Viador and Embracadero for development of their core products. The company is also working on testing patches for various operating systems for all the versions of MS SQL. Microsoft has provided the infrastructure for setting up this QA service. The company is currently working on ASP-enabling assignments and B2B exchanges assignments for clients such as Asera and Jamcracker. Most of the assignments are mission critical and cater to the highest end of value chain. The main objectives of the issue are To list the shares of the company on one or more stock exchanges and to enable the company to impart liquidity to the Employee Stock Option program To finance ongoing capital expenditure including setting up of a new development center and new employee training center. To finance expansion through acquisitions, joint ventures and strategic alliances and upon listing to make future acquisitions using shares as acquisition currency; and To meet the expenses of the issue
	Promoters
	Mr. S Parthasarathy is a Mechanical Engineer from the Indian Institute of Technology (Madras) and a PGDM from the Indian Institute of Management, Ahmedabad. He has over 16 years of experience through the early stages of the Indian IT industry both as a professional and as an entrepreneur. Mr. V. Swaminathan is an engineer from the Indian Institute of Technology (Madras) and has a Master of Science Degree from University of Missouri, USA. He brings over 12 years of direct sales and marketing experience in both the US and international markets. e4e Holdings Limited (formerly known as Fivess Ventures Limited), is a wholly owned subsidiary of e4e Inc. It was incorporated in Republic of Mauritius in November 1998, as an Offshore Private Company limited by shares.
	Sector
	Over the last decade the Indian software industry has grown to command one of the most important places in Indian industry. Industry revenues have grown from a mere US$ 50 million in FY89 to about US$ 5.7 billion in FY00, at a consistent growth rate of more than 50% since 1991. According to a study done by McKinsey for NASSCOM, the industry can achieve a turnover of US$ 87 billion by FY08 of which US$ 50 billion are expected to come from exports. Internet technology is also creating a new business model in computer services arena - Application Service Providers (ASPs). One of the big factors enabling this industry is that the thin client nature of Internet applications makes the applications more readily hosted outside the corporation. As a result, ASPs can host applications and "rent out" usage to clients. ASPs offer clients both cost savings as well as the ability to tap into the best practices using those applications. In some cases, it allows smaller companies access to applications they could not afford on their own. Currently the size of ASP market is pegged between US$ 2 billion and US$ 20 billion by FY03. The early adopters and targeted markets for the ASP alternative have been small to medium size enterprises (SMEs). It is estimated that there are 300,000 emerging enterprises in the US with revenues of less than US $500 million and IT budgets of US $5 million or less. Moreover, less than 5% of the emerging enterprises in the US will need to utilize an ASP solution to achieve projected market size.

	As B2B commerce and ASP space provides huge market potential, E-business solution providers like Aztech stand to benefit.
	The company has an impressive client list that includes Jamcracker, Microsoft, Asera, Capstan, Netopia, Viador, and Reez.com, to name a few.
	The management of the company has strong expertise in the field of information technology.

	The cost of the project and means of finance have not been appraised by any financial institution.
	The Company has not identified any specific acquisition targets or partners for strategic alliance. Any acquisition by the Company carries the challenge of integrating the people, the processes and culture of the acquired Company.
	On the offer price of Rs 80, the share is quoting at 66 times its FY00 earnings, which seems to be expensive, though not comparable with industry peers.