Hi Shivam - I absolutely agree with you on the management and team quality having highlighted it in my post as well. Just wanted to highlight the discomfort on valuation.
Just doing a quick back of the envelope calculation. Lets assume they actually double the revenues from ₹180cr to ₹360cr. Taking a management guidance of 15% PAT margins, we arrive at a PAT of ₹54cr. Applying the current PE multiple we get a price appreciation of 45% in 2 years or a CAGR of 22%.
I feel a lot of people would not want a bet on a small cap for a possibility of a 22% return! Plus there are quite a few downside risks to these calculations.
I definitely like the business. Tracking this story with a lot of interest
Agree that it may grow at around 20% CAGR if the PE remains same. Many companies may give you 20% CAGR for 2 years but not many will give 20% CAGR for 5-10 years. There are both upsides and downsides to these calculations. The downside is not walking the talk. The upside can be rerating if they can actually double it. Other IT companies which has the ability to grow revenues in double digits trade at PE > 50.
I didn’t buy Happiest minds or Route mobile shares after they got listed as I thought they were similar to other IT companies and valuations were quite high. But then markets are supreme. Similarly, I sold Tata Elxsi early thinking that it has run a lot and valuations didn’t seem cheap. What I have seen is that market gives premium valuations to companies with good management and which has ability to grow faster for long-term.
I’ve been following/invested since 2018. I agree with your assessment broadly. A couple of strengths I’ll add :
Look at their client list - there’s some big names in there. As someone with experience in the IT Services business, I can tell you that establishing direct relationships and accounts with big players is extremely tough, and the ones that Infobeans has are indeed direct accounts, and not subcontracted deals.
Management transparency in general - The company disclosed quarterly numbers even when it was listed on NSE SME exchange. The requirement for that exchange is 6 monthly disclosures. Management is extremely approachable.
From a cons perspective, the valuation right now is very high, and probably run up by a couple of years. You were right in pointing out that steady state profits are different - the bump up was due to US government’s program to pay SMEs for their losses during Covid. How much of that was true lost profit remains to be seen.
At the same time, you should follow them on LinkedIn and keep tabs on job openings and headcount. As you correctly pointed out, IT services is a people’s game. And no one likes a large bench. They’ve just shifted into major hiring mode for both Infobeans and Philosophie, which tells me something.
I wouldn’t put too much credence to the “double every two years” thing. It’s aspirational. It took them a long time from IPO to buy philosophie and get a decent bump in their revenue. It’s not easy to find and integrate new companies - most mergers fail. They also have a ton of cash sitting around on their books ( which is actually what got me interested in the first place, but that was when market cap was <150 crores), which will drag down profitability.
Sharing screenshots of investor presentation done on webinar.
Regarding acquisition of sales force partner implementation, they have not highlighted much since the deal is in preliminary stage and the due diligence process is going on. Expected timeline to complete the deal is 60-90 days.
Company is targetting EBITDA margin of 24% for next couple of quarters.
2.There is talent shortage in IT industry. Employee hiring cost is expected to go up for next couple of quarters.
3.As mentioned in previous con call, company is aspiring to grow 2x in 2 years.
Great set of Q2 numbers and new acquisition has been announced which will add 60 cr to top line in FY21-22. Consolidated EPS at Rs 4.87. Revenues and profits have grown both y-o-y and q-o-q basis.
Yes, good set of numbers, need to know the contribution of philosophie in this. Acquitions seems fairly priced as well, P/S of 2. The only question that remains in my mind is what is the possible organic growth from base buisness, i understand management has mentioned inorganic expansion as part of strategy but organic expansion is also critical.
@Prakhar_Gupta1 , I am very ordinary investor and my source of information is only NSE.
Hope below clarifies the timing of published results. The time quoted by you was for investor presentation.
