The Hindu Business Line : Aztec Software jumps on earnings potential

TALK of a ramp up in their client base and a visible improvement in their earnings potential have been propelling the counter of Aztec Software and Technology Services (Aztec) on the bourses. The stock has appreciated by 22.43 per cent from around Rs 31.20 levels as on August 3 to its current levels of Rs 38.30 (BSE).

Analysts maintain that there has been a build up in interest in the counter ever since the company underwent a financial turnaround in FY04. Aztec focuses on software product development and related services.

A Kotak report on the company is of the view that the company's strategy of focussing on established companies as against venture funded companies in the past and providing a broader range of its products is paying off. Today, its clients include stable product companies with annual revenues in excess of $1 billion.

"With its focus on bigger customers and the annuity business, Aztec will have a more predictable and sustainable revenue model coupled with higher profitability. Currently, about 70 per cent of the company's revenues is from its annuity business. The company signs up long term Master Service Agreements (MSA) with its clients which are for a minimum period of one year and extend to around three years," said the report.

Analysts tracking the company maintain that revenues and PAT are expected to grow at CAGR of 8-9 per cent till FY06 end. However, even as the counter is witnessing sustained interest on the bourses, there are unvoiced concerns over the company's dependence on few clients.

"While there is talk of a ramp up in its client portfolio which is expected to augur well for the company, the broad-basing of its revenues stream is yet to happen. Till such time, any slowdown in revenues from any of its major client could impact growth adversely," said an industry source.

The stock ended the day at Rs 38.30 (BSE) with around 41,467 shares traded.

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