CMP : 111, Mkt Cap : 294 Cr
Investing Rationale : What catches my eyes is contribution from Healthcare sector for this company is 24% of revenues (as compared to 5 -10% for other companies, barring Congnizant - which is listed on Nasdaq). It derives approx 60% revenues from the USA. Experts in the field believe that the “Patient Protection and Affordable Care Act”, popularly known as ‘Obamacare’, represents an opportunity of USD 3 trillion. Congnizant’s USD 2.7 billion recent deal to acquire healthcare IT services provider TriZetto has raised hopes of similar transactions in the sector at home. (Ref :
** Company & Business : **
Helios and Matheson Information Technology Ltd was established in 1991 and is headquartered in Chennai. FYa13 Operating Income 653 Cr (follows FY Oct-Sept). Revenue contribution : (a) BFSI - 39%, (b) Healthcare - 24%, © Technology - 21%, and (d) Other Services - 14%. Over 60% revenues are coming from US. Its subsidiary aHelios & Mathesaon Analytics Inc.’ is listed on Nasdaq, which is a positive in my view. Traditionally, it has grown organically by acquiring other companies by raising debt. This has lead to higher debt when compared to other listed peers.
Valuation : EBITDA margins of this company are consistently in the range of 20 to 22.5% since past 3-4 years, while PAT margins have moved from 3.8% in FY11 to 7.8% in FY13. The quality mid cap IT firms are trading at 15+ times earnings. This company is available at 5.76 times, which could only be because of high debt levels but it is still very cheap.
** Debt position :** For an IT company the debt:equity ratio is way too high at about 0.8. In FYa13, there was net reduction of long term debt by 30.96 cr (on account of repayment of Term Loans). Short term borrowings increased by 50 cr. Long term debt as on 30-09-13 stands at approx 156 cr. The management, in an interview, expects to arepay the current debt in next 2 a 2.5 yrs considering HMITas present cash flows.a
From where the growth will come from :
1). The company is focused on Healthcare vertical as next growth driver. Max revenues contributed by BFSI & Healthcare. Owing to economic recovery in the US, outlook on BFSI is bright with Healthcare being evergreen / recession proof sector.
2). Focused on SMAC (social mobility, mobile, analytics & cloud computing) as a new growth area and has conducted some test runs in the current quarter.
Crisil research has estimated fair value of 114 for this company based on DCF method. (http://www.moneycontrol.com/news/crisil-research/crisil-assigns-valuations-grade45-to-heliosmatheson_1169655.html)
I do not understand DCF and request seniors to comment on this. I believe this stock is attractive because the sector has changed for better (read Healthcare IT services) and the stock is available at a low PE when compared to other listed IT peers.
P.S. There is a thread on this company in Company Q&A. However, I believe this forum is more appropriate to initiate discussion.