With e-governance in full swing in almost all states in India, and most companies having a track record of atleast 5 years, isn’t this a good time to look at some of these IT stocks?
E-governance initiatives across all states will probably go on for a long time (atleast another 5 years) and the funding, although not very steep, is very steady. Since we can expect steady returns (and who knows, maybe dividends too), does anyone have any opinion on some stocks in this area?
Anyone tracking this area? Any views on this one?
Two stocks which did come under my purview are -
ABM Knowledgware - This turned up on my pretty steep criteria screener (D/E < 1 for the last 3 years, ROCE > 20% for the last 3 years, P/B < 2, OPM > 1.5IndMedOPM, NPM > 1.5IndMedNPM, GPM > 40% and so on and so forth). As I researched it further, I found it to be one of the fastest growing companies according to ET. On the business side, they have done very well over the last 9 years, starting with the Maharashtra govt. and slowly expanding to other govts. e-governance initiatives. Currently, they proclaim themselves to be the leader in implementing e-governance initiatives across India. I reached out to them for the last 5 yrs annual reports as I couldn’t find them on their website. Anyone tracking this stock?
Tera Software: In researching the competition for ABM, Tera was one stock which was almost as consistent in financial performance (including the magnitude) and its bread-and-butter also seems to be e-governance initiatives. They were one of the companies which were empaneled in the India-wide AADHAAR project (‘empanelment’ essentially means that a certain percentage of revenues/projects have to be given to Tera - this percentage is usually confidential. At the same time, getting empaneled is not easy at all). Anyone tracking this stock.
For ABM, the company seems to have a clean balance sheet with cash around 20-25% of its market cap. volatility in the last two days has been high, but I think this one needs further looking into.
According to the balance sheet, it holds 21 crores in cash or equivalent. current market cap is 61 crores. Effectively more than 30% market cap is in cash.
Coming to the quarterly results,
sales of 12.97 cr vs 10.8 cr (q3 fy 10)
and net profit of 2.58 cr vs 2.06 cr
and for 9 months
9m fy 11 sales at 43.53 cr vs 29.6 cr (9m fy 10)-- full yr fy 10 sales 42.2 cr
9m fy 11 net profits at 7.94 cr vs 4.94 cr (fy 10 full yr NP at 6.87 cr)
Effectively fy 11 will be a very good year for the company with full year net profit slated to cross the 10 crores mark.
Now if u subtract the cash from market cap, u are getting a company earning 10 crores np on effective market cap of around 40 crores
Seems to be attractive provided we can ascertain that the company can show good growth.
Yes, I am following this stock indeed (and with much interest, I might add!).
They are doing really well (as the figures speak for themselves) and with a strong balance sheet, it is a Buy for me.
The risks continue to be Governments across the board cutting down on E-initiatives to fund other vote-based initiatives (for example, the budget for UID initiative was cut by half to 3500 crores). Also, I’d like to really see the debtor days come down a little (hopefully, will see those figures in Mar’11 results). Of course, ABM is much better than say a Tera software in this sector in terms of Debtor days. But still, I’d like to see more cash coming in quickly.
Having said that, it’s a steady compounder (and definitely not one of those rocket stocks). They are pretty entrenched with various governments and the cash on the balance sheet gives us a margin of safety. The only downside (if you look really hard!) as of today is the price. I’d like the Price in relation to Book come down to below 2 and we can all add significantly to our positions (Of course, at the rate at which they and their EPS has grown over the past 5 years is tremendous - so, depends on the risk profile of the investor really!)
Is anyone still tracking ABM … though topline fell, the balance sheet ( have only last yrs ) looks good with 50% mar cap in cash and p/b = 0.5 … worth figuring out business outlook cause further fall in price will bring it close to one time earning net of cash !
The biggest issue in the e-governance space is that all of these are govt contracts and the bidding and the awarding of the contract is less than ethical. One can never be sure of the contract value at which the contract was awarded vis-a-vis the actual value of the work involved.
One should be very wary of companies playing solely in this space. Another issue is the huge issue in collecting the receivables from the govt.
(Of course, at the rate at which they and their EPS has grown over the past 5 years is tremendous - so, depends on the risk profile of the investor really!)