Networth recommends `Buy` on Aftek

Networth Stock Broking recommended `Buy` on Aftek with a price target of Rs 100 as against current market price of Rs 70. (November 30)

Aftek, a seasoned player in software product engineering, has more than 100 active intellectual properties to its credit. Owing to this, Aftek commands premium in its billing rates and increased revenue of employees than most Indian IT companies. The non linear model of the company and its subsidiaries enables the company to beat the `Rising Rupee` blues most effectively.

The company`s investments into its subsidiaries, Arexera, Seekport and Digihome, transform the company into the league of royalty bearing product companies. At the current market price of Rs 70, the stock is trading at a P/E of 6.7x and 4.9x its FY08E and FY09E EPS respectively.

Despite strong fundamentals, the company is valued at 50% discount to its nearest competitor. Owing to its reclassification as a product company, Networth believe that the stock is a strong candidate for re-rating from its existing average forward P/E of 6.5x - 8x.

The broking house, however, was extremely conservative in its approach for projections. The company`s cash reserves is a huge strength for expansion in future. The company`s cash on its books stands at Rs 33 a share. At a P/BV of 1.0, the stock is extensively undervalued. The broking house valued the company at mere 7x its FY09E EPS of Rs 14.4. It firmly recommended a `Buy` with a price target of Rs 100, an upside of 43% over the CMP.