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Pentafour to spin off software, focus on multimedia - Views on News from Equitymaster
 
 
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  • Dec 7, 1999

    Pentafour to spin off software, focus on multimedia

    Pentafour Software is mulling to hive off its software division, and transfer it as a going concern to Pentafour Communications. This was reported by a leading financial newspaper.

    Pentafour Software and Exports differentiates itself from its software peers on the basis of large exposure to high margin multimedia business. It has a competitive edge in multimedia due to its excellent track record and long term relationships with global multimedia companies. It is one of the few companies worldwide that can produce complete content for multimedia-based movies, and was rated as the No. 3 company in the world by a recent study.

    Pentafour Software's move to hive-off its business software division is in line with the company's strategy to increase focus on its biggest strength - multimedia. In 1HFY2000, business software contributed 45% of the company's total revenues (Rs 3.2 bn). The software division comprises banking insurance, enterprise resource planning (ERP), e-commerce and other emerging technologies.

    Clearly, Pentafour Software's strengths lie in multimedia, which is a high-margin business. So a spin-off seems the most natural consequence. This will help the company unlock value of its multimedia business. While earlier its resources were shared by the software and multimedia businesses, it can now look to concentrate all its resources on multimedia.

    The spin-off will also have a positive impact on the company's share price and will reflect the company's enormous potential in multimedia.

    Market view:
    Pentafour's stock has been trading at a discount to its peers largely due to poor management perception. However, analysts agree that a hive-off will have a positive impact on the company's share price. This combined with the fact that its 2QFY2000 performance (net profit up 67%) was good, has made analysts recommend a 'BUY' on the company.

     

     

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