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The company’s share price (as on January 15, 2016): Rs. 149.85 per share
Market Capitalization: Rs. 970 crores
52 week high –low: 207.00(24/03/2015) to 101.50(16/06/2015)
Business:
Geometric operates in the Engineering to manufacturing space and predominately for the engineering intensive discrete manufacturing industries. It is a global company with a successful track record of innovation in the niche area of engineering software, solutions and services. Its portfolio of Global Engineering services, Product Lifecycle Management (PLM) solutions, Embedded System solutions, and Digital Technology solutions enables companies to formulate, implement, and execute global engineering and manufacturing strategies aimed at achieving greater efficiencies in the product realization lifecycle.
History:
Geometric was set up as a division of Godrej and Boyce in 1984. Geometric launched one of the first drafting software on the UNIX platform as early as 1987. Geometric made an initial public offering in February 2000.
Insider ownership:
Total shareholding of Promoter and Promoter Group 38.03%
Customers:
Helping Manufacturers, Systems OEMs and Independent Software Vendors make better products including:
8 of the Global Fortune Top 10 Automotive OEMs
7 of the world’s leading Aerospace OEMs and suppliers
5 of the top 10 Off-highway OEMs
5 of the world’s leading Machine tool players in their respective segments
Geographical Presence:
Development and sales locations across USA, Canada, UK, France, Germany, Sweden, Romania, China, Japan and India
Investment Thesis
I. Decent financial growth
In FY15, the company’s consolidated revenue increased by 1%.
In Q2 –FY16, the company’s operating revenue increased 3.6% q-o-q and 10.3% y-o-y. During the same period, consolidated profit after tax increased 20.4% q-o-q and 41.3% y-o-y.
(Rs. in millions) Year ended
31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15
Total Revenue 8,241 10,368 11,091 11,248
Revenue growth % 26% 7% 1%
EBITDA 1,309 1,618 1,399 1,495
Profit for the year 591 687 462 551
Profit as % of total income 7% 7% 4% 5%
Mr. Manu Parpia, Managing Director & CEO said (Q2 FY16), “We have had an exceptional quarter, with significant improvements in profitability for Geometric excluding our joint venture. This is the result of a concerted effort to improve our margins so as to build a sustainable enterprise. We continue to witness growth opportunities across all our verticals, which we believe will enable us to improve the quality of revenues, while continuing in our endeavor to improve our margins”.
Cash Dividend:
The company’s pays regular annual dividend. In 2015, the company paid Rs. 2.50 per share as dividend to its shareholders. It is to be noted that the company has gradually increased its dividend from 40% in 2005 to 120% of face value in 2015.
Year ended
31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15
Dividend % 80% 85% 100% 125%
Key Ratios:
Year ended
31-Mar-12 31-Mar-13 31-Mar-14 31-Mar-15
Growth in PBT 16.8% 22.6% -18.1% 13.8%
Growth in PAT 23.3% 16.2% -32.7% 19.3%
ROA 14% 13% 8% 8%
ROE 29% 31% 15% 15%
ROIC 45% 56% 34% 31%
II. Presence of Rakesh Jhunjhunwala
Mr. Rakesh Jhunjhunwala, a well known Indian investor, has been a shareholder of Geometric Limited for more than 10 years. Mr. Jhunjhunwala holds 18.87% as of December 2015.
Other important announcements
In December 2015, the company launched its turnkey 5-axis CNC machining solution in North America.
The company expects a modest growth in revenue and an improvement in margins in Q3-FY16.
Risks:
Currency Rate Fluctuations: More than 90% of company’s revenue, generated from foreign regions. The company’s profits will be highly impacted by foreign currency rate fluctuations.
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Comparable Analysis
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Company Name M.Cap. (Rs. In millions) EV (Rs. In millions) EV/Revenue EV/EBITDA Price/Book Value
Tata Elxsi 55,490 54,360 5.7 26.0 19.6
KPIT Technologies 28,400 28,290 0.9 9.3 2.8
Persistent Systems 50,380 45,300 2.2 12.2 3.6
Average 2.9 15.8 8.7
Median 2.2 12.2 3.6
Geometric Limited 9,680 8,410 0.7 8.0 2.5
Potential Upside:
Scenario 1: Based on DCF analysis, Geometric’s share price will be Rs. 161 per share (potential upside of 7%.
Scenario 2: Based on comparables’ low valuation multiples, Geometric has a potential upside of 10% to 20% (i.e., Rs. 164 to Rs. 180 per share).
Disclaimer
All content of this site is provided for informational purposes only and is not for making a decision to carry out a transaction or trade or make any other investment decision. I don’t hold any shares in the company nor proposing to buy in the future.