I found this stock quite interesting given its attractive valuations and presence in a niche segment of IT Assurance and Testing. The IT testing space which was earlier seen as sweat shop work is now becoming a critical part of IT services, where products, packages and systems have to be tested to check their validity and ability to meet requirements.
At current price of Rs.70.5 (May 31, 2013 closing) its available at 16.1x PE and 0.83 Price to book.
This seems attractive since book value is roughly about Rs.85 and the stock price is at a discount to the same.
The company is debt free, and the promoters are closely involved in managing the business. The company is in to testing and assurance
for banking, financial services and insurance sectors and has presence in US, UK, Euro, Asia and other markets and has some domestic oriented business too.
Unlike other tech players this company is fairly diversified geographically across markets (mostly outside US).
The profits and margins are pretty strong but it may get affected due to issues in Euro Zone.
The March 2013 quarterly results were not good - sales were down significantly but compared to last year it grew from 31.6 crore (march 2012) to 37.4 crore (march 2013), but profits were disappointing
)- profits declined from 24.4 crore (march 2012) to 19.4 crore. However, if we look at the full year 2012-13 the total net profits were Rs.69 crore against approx. Rs.60 crore last year, and EPS jumped to Rs.15.95 (2013) from 9.01 (2012). Looking at a longer term view, FY 13 has been a good year for the company. They also invested in new office premises in an SEZ which will also result in significant cost savings and operational efficiency.
I’m not claiming this to be the next Infosys or Mindtree, but Thinksoft is a leader in its own small turf. The stock has been in its fancy in the past, but now its reverting back to its fundamentals and we can expect a realistic and steady growth. With a turnover of roughly Rs.157 crores Thinksoft cannot be compared with other established names or mid caps. Probably it may emerge as a unique small cap growth story. Will this become a Multibagger? Difficult to say…probably we will get to know in a few year.
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