IKF Technologies- Here's some food for thought

source: aiii

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.

For more such stock analysis
visit www.hbjcapital.com, www.multibaggerpennystocks.com

Regards
Ekansh-Hbjcapital (ekansh@hbjcapital.com)
9350529926