Business of the Company
The company is an IT service provider with footprint mainly in the areas of e-learning, digital content services, IT consultancy and product engineering services. The company has been in existence for over a decade and has chalked revenues of Rs.85 crore for the year 2004-05; this has grown from 43.86 crore in the fiscal 2002-03. Of this 55% have come from IT consulting, 25% from e-learning and the remaining 20% from product engineering. The operating margins of the company have been 13.5% and are in line with IT companies of the same size.
The company has its facility in Noida and San Jose and has a strength of 600 people. It has also acquired a building next to its facility which would have a capacity of 300 people and will be made functional in the next three to five months.
Financials
The company has grown from revenues of 47.66 crores in 02 to 88.5 crores in 05 and there has been a steady growth apart from a decline in revenues in the year 03 when the revenues declined from 47.66 crores to 43.87 crores. The profit after tax has also increased from 1.96 crores in 2002 to 9.26 crores in the last fiscal. The EPS comes out to be Rs.8.82 and at an offer price of Rs.50 the P/E multiple comes at 5.66 and a multiple of 7.5 on the expanded equity base post IPO. This is a reasonable multiple if we consider the valuations commanded by the frontline IT companies and the general euphoria in the markets which is tempting most promoters to offer shares at greatly inflated P/Es. The issue opens on August 22nd and closes on August 26th.
Growth Drivers
Since large Indian players and now even MNCs are present in the lower end business of application maintenance business from where the company derives almost half of its revenues the going will be tough in this segment. The growth drivers going forward will be the e-learning and product engineering business. However here itself the competition will be intense from the larger companies and this would lead to pricing pressures.
Key Risks
Since the company is small in size the key risk will be scaling up the value chain as well as deepening of relationships with the key customers to offer solutions at a bigger scale. At the lower end of the IT space services have been commoditized and increasingly companies are looking towards playing on price and highlighting past performance to go deeper in the account and grow revenues. Because of the smaller size of the company its bigger competitors would be able to offer that much more price advantage and reliability to its customers.
Secondly the salaries are growing at around 13-15% in the industry as a whole and there would be competition for talent as well. Another factor which makes this more intense is that the company is located in Noida whereas most of the IT sector and professionals are located in the southern parts of the country and as such for the company to really grow it would have to attract some of the people from down south which will pose additional difficulty.
The table below lists other stocks in this section
which also belong to the I.T. Sector.
I.T.
