Little big company

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Once in a while, it's fun taking a shot in the dark. Instead of discussing some Nifty giant with thousands of crores in revenues, I'd like to focus on a really tiny company. The company in question has an equity of Rs 6.4 crore and a market cap of Rs 13-14 crore.

It has terrible financials. In fiscal 2003-04, on a turnover of Rs 7 crore, it registered a loss of Rs 1.6 crore.

In fiscal 2004-05, its seen turnover shrinkage from Rs 4.8 crore in April-December 2003 to Rs 1.6 crore in April-December 2004. Losses have run at Rs 3.6 crore "" yes, losses exceed the 9-month revenues!

So why is the Bangalore-based Encore Software (www.ncoretech.com) interesting? Encore of Bangalore combines software sales including the sale of IP rights, with products and consultancy services.

The income drop is due to a downshift in software sales (plus IP rights and royalties) from Rs 3 crore in the first three quarters of 2003-04 to Rs 1 crore in the corresponding period of 2004-05 and a drop in consultancy incomes from Rs 1.2 crore in 2003-04 to just Rs 40 lakh in 2004-05.

Expenditure has increased from a combination of higher staffing costs (up 34 per cent), and net outgoings on both IP and consultancy fronts. Encore has hired people, and paid for software, IP rights and consultancy services.

That's because it is changing profile and hopes soon to be selling a range of low-end handheld devices. Encore has strong connections to the Indian Institute of Science (IISc, Bangalore).

Its academic inputs were integral to the Simputer and to variants of that low-cost handheld.

The Sathi (Situational Awareness and Tactical Handheld Information) has just gone into field trials in Jammu & Kashmir. The potential buyer is the Indian army.

That's if the 120 Sathis handed out to units in the pilot project live up to expectations.

The Sathi is built to tough specifications: a handheld with idiot-proof, battlefield networking for military units posted across Siachen, the Thar Desert and the North Eastern jungles.

It runs off a Linux platform, uses Global Positioning System (GPS) and a customised Geographical Information System (GIS), smart-card readers, simple graphical input systems to create maps and sketches and connects through an internal wireless modem with custom encryption software.

It could be a force multiplier for the army and there may be huge orders. The device is priced under Rs 10,000, which is much cheaper than an automatic rifle.

That's Encore's "killer-app". If Sathi and the Simputer in general, are successful, Encore has explosive growth prospects. Projections in such ventures are always nebulous.

But Dalal-Street-corner estimates are in the range of 25,000 Simputers sold in 2005-06.

If true, we're talking Rs 25 crore revenues. If the Sathi/Simputer fails, Encore may implode "" it's heavily committed.

The stock is priced at Rs 21, it's trading 3-lakh plus shares per day. If you buy, you might lose a lot. But you might make a packet. Disclosure: I haven't got a position in Encore "" yet.