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IKF Technologies- Here’s some food for thought


Till some time back, IKF Technologies was a favorite amongst investors. Here’s some food for thought for all those interested in it. IKF Technologies Ltd. was incorporated on 22nd, February, 2000 in the name of IKF Software.com Limited to carry on the software development business, ITES-BPO and call center. The name of the company was changed to IKF Technologies Limited with effect from 5th July 2001. The above two lines speak volumes of the quality and the opportunistic behavior of the management. These lines are making a clarion call, that, the management lays more stress on the name, rather than the operations of the company. In early 2000, the software industry was booming, so they added software and dot com to their name. In those times, any company which came with the IPO and had software in its name, proved to be a multibagger within few days.

Now, what made the company change its name almost after 1 year of its public issue? Companies change name, when there’s a drastic change in the operation of the company and when the core business of the company does not remain same. For, IKF , its core business was still software development and the only reason behind such a move could have been, the general dislike in 2001, for companies engaged in software business. That’s why I said, the company is more into cashing in on the sentiments of the investors, rather then through their business activities.

These days the company is again into limelight, and the gullible investors are making a multibagger out of this penny stock. The reason for frenzy and excitement over this counter is quite understandable. IKF technologies has floated a subsidiary with the name IKF Green fuel ltd., which it says is one of the front runners in the bio-fuel industry. I am putting in these details, just to make you aware of the facts about the company.

Lets dig deep into the numbers

The company has been making tall claims since the beginning of year 2008 about its expansion into the bio-diesel industry, and the area under cover for the cultivation of jatropha plants. If we take into account the sales mix of the company for FY2008-09, then 99.99% of the revenue for the company came from IT enabled services. Now, its been more than 1 year, since the company started talking about bio-fuel, but even in the results, as latest as Jun’09, IT enabled services contribute almost 100% to the revenue of the company.

An interesting fact that came to my notice while going through their income statements, is that for quarter ending Dec’08, the company’s expense on staff came down by more than 50% in comparison to the previous quarter. This, downward movement is suggestive of two things:

  • The company’s head count has been reduced to half. But, how can that happen for a company trying to expand itself into other businesses, and also looking for funds in the range of 400-500 crores.
  • So, if the above point is ruled out, then the second case may be that the company is manipulating its accounts in order to report a higher Net profit.


Whatever may be the reason, but this thing makes me a bit skeptical about the activities of the management.
Another point of concern, is that although the company has raised money by issuing GDR, but there has been a decrease in promoter holding, and they hold just about 8-9% in the company.

Business Analysis

The company has talked a lot about its bio diesel initiatives in the past, nothing substantial has happened so far. Going forward, even the IT and ITES segment revenue for the company will be affected, owing to the current global crisis. I read in one of their announcements, that an approval has been obtained for an alteration in the object clause of of the Memorandum of Association of the Companies Act, 1956 to enable the Company to commence the activity in the field of Telecommunication and Solar Power generation. The company is so small and has not been able to establish its other businesses well, but is trying to put its hands into too many things. This might not work out well for the company in the short term as well as in the long run.

Personally, I would not recommend this counter to any of my readers, as I am not confident about the management and the tall claims made by them. All the claims made by them, seem to be completely devoid of substance and it seems as if they just try to play on the mind of an innocent investor. If anyone is really bullish on bio-diesel, then one should look for companies which have already started production. One such company was discussed on MPS, when it was open for all.


Note:
The stocks discussed at www.hbjcapital.wpengine.com thru blog postings are neither a part of “10in3” not “Street Smart” issues which we publish for paid subscribers. These are just stock specific views by HBJ Capital team; one MUST do the due diligence before doing any investment based on our reco.

To contact the equity analyst on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com

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