Allied Digital Services Ltd. CMP Rs 480.30 Target Price Rs 580.00
Company Snapshot
Allied Digital is a leading IT Infrastructure management and technical support services outsourcing company. It enables global, large and medium enterprises along with service providers to reduce their total cost of ownership using a combination of onsite as well as remote services. It has over two decades of experience in technology and enterprise IT infrastructure implementation, management and consulting on complex IT and business systems for global businesses. The company operates across a network of 72 locations (direct presence) across the country with a team of over 1,000 employees from different managerial and engineering backgrounds.
Company Snapshot
Allied Digital is a leading IT Infrastructure management and technical support services outsourcing company. It enables global, large and medium enterprises along with service providers to reduce their total cost of ownership using a combination of onsite as well as remote services. It has over two decades of experience in technology and enterprise IT infrastructure implementation, management and consulting on complex IT and business systems for global businesses. The company operates across a network of 72 locations (direct presence) across the country with a team of over 1,000 employees from different managerial and engineering backgrounds.
Business Segments
Solutions: Solutions business is the system integration business wherein ADSL sets-up the entire IT infrastructure on a turnkey basis. It designs the operating infrastructure/environment on which enterprise-wide applications such as ERP, SCM and CRM run. The Solutions segment also includes software services and integrated Solutions. ADSL is a leading provider of the entire gamut of Integrated Solutions, with CCTV, access control, fire detection systems, smart cards and RFIDs.
Solutions: Solutions business is the system integration business wherein ADSL sets-up the entire IT infrastructure on a turnkey basis. It designs the operating infrastructure/environment on which enterprise-wide applications such as ERP, SCM and CRM run. The Solutions segment also includes software services and integrated Solutions. ADSL is a leading provider of the entire gamut of Integrated Solutions, with CCTV, access control, fire detection systems, smart cards and RFIDs.
Infrastructure Management Services:
Onsite Infrastructure Management: ADSL provides ITIL compliant onsite infrastructure management services specifically designed to meet client's complete IT outsourcing needs. Services include IT Help desk, Desk-side support, server management, network management, data centre operations management, security manag ment, application management, database administration, etc.
Remote Management Services: Adding on to the value chain of Infr structure Management Services, ADSL provides Remote Management Services through its ISO 27001 certified NOC/SOC centre at Mahape, to local and global customers. With highly skilled personnel, best industry practices and cuttingedge technologies, company provides expert services for network and security management.
Technical BPO: ADSL has OEM customers across various sectors for outsourced customer care services. Company provides telephone or web-based, on-site, logistic and repair services to Unisys, Fujitsu Siemens, EDS, Xenitis, Sahara Computers among others.
Onsite Infrastructure Management: ADSL provides ITIL compliant onsite infrastructure management services specifically designed to meet client's complete IT outsourcing needs. Services include IT Help desk, Desk-side support, server management, network management, data centre operations management, security manag ment, application management, database administration, etc.
Remote Management Services: Adding on to the value chain of Infr structure Management Services, ADSL provides Remote Management Services through its ISO 27001 certified NOC/SOC centre at Mahape, to local and global customers. With highly skilled personnel, best industry practices and cuttingedge technologies, company provides expert services for network and security management.
Technical BPO: ADSL has OEM customers across various sectors for outsourced customer care services. Company provides telephone or web-based, on-site, logistic and repair services to Unisys, Fujitsu Siemens, EDS, Xenitis, Sahara Computers among others.
The company has registered tremendous results for the quarter ended June 2009. The net sales jumped around 72 percent in Q1FY10 at Rs.1589.60 million as against Rs.925.60 million clocked in same quarter last year. The operating profits for quarter ended June 2009 stood at Rs.297.70 million as against Rs.224.80 million in corresponding quarter previous year, portraying a sharp
growth of 32.43 percent. Similarly, adjusted PAT climbed by around 45% at Rs.227.70 million as compared with Rs.157.60 million for Q1FY09. On the margins front, operating profit margin remained flat at 18.73 percent on a sequential basis and similar is the case in net profit margins which stood at 14.32%. EPS for Q1FY10 stood at Rs.12.57 witnessing a sharp jump of about 50% from the corresponding quarter last fiscal.
growth of 32.43 percent. Similarly, adjusted PAT climbed by around 45% at Rs.227.70 million as compared with Rs.157.60 million for Q1FY09. On the margins front, operating profit margin remained flat at 18.73 percent on a sequential basis and similar is the case in net profit margins which stood at 14.32%. EPS for Q1FY10 stood at Rs.12.57 witnessing a sharp jump of about 50% from the corresponding quarter last fiscal.
Yearly Financial Highlights
On standalone basis, the company has posted excellent results for financial year ended March 2009. The Net sales stood at Rs 3916.41 million moved up by almost 32 per cent over the last year’s turnover of Rs 2970.35 million, at the same time the expenses stood at Rs 2946.73 million up by little less than 28 per cent driving the operating profits even higher to Rs 969.68 million posting a growth of 45.27 per cent on YoY basis. The increase in Total Income is due to steady growth in all lines of business. The cost of sales for the year ended March 2009 was 63% as compared to 67% during last fiscal. The bottom-line of the company stood at Rs 768.44 million registering a marvelous growth of 76.41 per cent from Rs 435.59 million clocked last year. The company has been able to keep its margins on growth trajectory despite slow down in the industry margins. The operating profit margins have expanded by 229 basis points to 24.76 per cent while the net profit margins have jumped to 19.62 per cent from 14.66 per cent in FY08 indicating the growing profitability of the company and an expansion of around 500 bps. The EPS for the financial year ended March 2009 stood at Rs 42.42 which is up by around 64% from last fiscal. Similarly Cash EPS stood at Rs.44.40 in FY09 as against Rs.27.09 last year.
Investment Rationale
Robust Order book: The Company has strong order backlog both on solutions and services segment. The order book position on the services side is close to around 153 Crores and on the solution side, it is close to 75 Crores. This is executable over next six months. For this quarter the company has 85 Crores on the solutions side. Further the company has also been able to get some good deal in the US among the top five finance companies and also some very good deals with an OEM manufacturing company out in US wherein it is exclusively providing remote management services and would be getting across in other regions within next seven months.
Efficient acquisitions: The recent En Pointe Global Services LLC (EPGS) acquisition has significantly increased international IMS revenues apart from driving domestic revenues through offshoring. Further, the key rationale behind this acquisition apart from gaining a strong US presence and large client relationships was to scale-up EPGS revenues by up-selling valued added se vices and improving margins through remote transition of delivery. In the current quarter the revenues from En Pointe is Rs.50 crores out of which 90-92% is on annuity basis leading to its 0.5% margin improvement. Acquisition of Digicomp Complete Solutions Limited has bought component repair services in company’s Technical BPO portfolio along with a strong middle management in the company.
On standalone basis, the company has posted excellent results for financial year ended March 2009. The Net sales stood at Rs 3916.41 million moved up by almost 32 per cent over the last year’s turnover of Rs 2970.35 million, at the same time the expenses stood at Rs 2946.73 million up by little less than 28 per cent driving the operating profits even higher to Rs 969.68 million posting a growth of 45.27 per cent on YoY basis. The increase in Total Income is due to steady growth in all lines of business. The cost of sales for the year ended March 2009 was 63% as compared to 67% during last fiscal. The bottom-line of the company stood at Rs 768.44 million registering a marvelous growth of 76.41 per cent from Rs 435.59 million clocked last year. The company has been able to keep its margins on growth trajectory despite slow down in the industry margins. The operating profit margins have expanded by 229 basis points to 24.76 per cent while the net profit margins have jumped to 19.62 per cent from 14.66 per cent in FY08 indicating the growing profitability of the company and an expansion of around 500 bps. The EPS for the financial year ended March 2009 stood at Rs 42.42 which is up by around 64% from last fiscal. Similarly Cash EPS stood at Rs.44.40 in FY09 as against Rs.27.09 last year.
Investment Rationale
Robust Order book: The Company has strong order backlog both on solutions and services segment. The order book position on the services side is close to around 153 Crores and on the solution side, it is close to 75 Crores. This is executable over next six months. For this quarter the company has 85 Crores on the solutions side. Further the company has also been able to get some good deal in the US among the top five finance companies and also some very good deals with an OEM manufacturing company out in US wherein it is exclusively providing remote management services and would be getting across in other regions within next seven months.
Efficient acquisitions: The recent En Pointe Global Services LLC (EPGS) acquisition has significantly increased international IMS revenues apart from driving domestic revenues through offshoring. Further, the key rationale behind this acquisition apart from gaining a strong US presence and large client relationships was to scale-up EPGS revenues by up-selling valued added se vices and improving margins through remote transition of delivery. In the current quarter the revenues from En Pointe is Rs.50 crores out of which 90-92% is on annuity basis leading to its 0.5% margin improvement. Acquisition of Digicomp Complete Solutions Limited has bought component repair services in company’s Technical BPO portfolio along with a strong middle management in the company.
Segmental gains: The Company has improved a lot in its services revenue, which was last quarter 50%-50% but now it stood at 55% services and 45% on Solutions. The revenues from infrastructure management services jumped around 16% from last quarter.
ADSL is a strong IMS player: The experience and expertise in system integration, wide onsite reach and sizeable remote infrastructure and technological depth makes ADSL a very competitive IMS player. ADSL brings significant cost savings for customers without any compromise on quality as compared to the large offshore IMS services providers. Company’s IMS clientele includes large domestic corporates such as Raymonds, M&M, Tata Power, Bajaj Auto, Kingfisher, Pidilite, Reliance, ICICI, etc.
Valuation
The company is well positioned to reap the benefits of its efficient acquisitions across the globe which entails its increasing global presence. Further, the company is expected to continue to post excellent financial performance on the back of its strong order backlog. In wake of the growth of the remote management services, Allied Digital Services Ltd. seems to be extremely attractive investment opportunity. Presently, the stock is trading at Rs 480.30 which is at 11.32 times to its earnings and 2.73 times to its book value of Rs 175.78. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with a target price of Rs 580 in medium term investment horizon expecting an appreciation of about 21% from the current level of Rs 480.
Valuation
The company is well positioned to reap the benefits of its efficient acquisitions across the globe which entails its increasing global presence. Further, the company is expected to continue to post excellent financial performance on the back of its strong order backlog. In wake of the growth of the remote management services, Allied Digital Services Ltd. seems to be extremely attractive investment opportunity. Presently, the stock is trading at Rs 480.30 which is at 11.32 times to its earnings and 2.73 times to its book value of Rs 175.78. Since the stock offers good opportunity, we initiate a ‘BUY’ signal on the stock with a target price of Rs 580 in medium term investment horizon expecting an appreciation of about 21% from the current level of Rs 480.
Source: Internet (Valuenotes by Hem Securities)
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