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Wednesday, March 22, 2006

Powersoft Global Solutions - IPO

Background :
  • Powersoft Global Solutions Ltd. (PGSL) was originally incorporated in November 1992 as Bhandari Food Flavours Ltd. Its name was changed to the present in March 2000.
  • PGSL provides IT solutions and services like application development, maintenance and integration, software product development, engineering outsourcing, Radio Frequency Identification (RFID) solutions, research and development services and Business Process Outsourcing.
  • It provides business solutions to manufacturing, logistics, retail, consumer electronics, pharmaceuticals, aerospace, defense and utilities industries in North America, Europe and the Asia-Pacific.
  • PGSL is a subsidiary of Nirvann Corp, North America and has also entered into the agreement with Nirvann Corp. to market and promote the services and solutions developed by the company.
Objects of Issue :
  • Upgradation of existing infrastructure facilities with an investment of Rs. 262 lakhs.
  • To set-up an R&D center, an investment of Rs. 80 lakhs
  • To meet the expenses of Overseas Marketing with an investment of Rs. 251 lakhs.
  • To meet the costs of strategic acquisitions with an investment of Rs. 3 lakhs.
  • To meet the Working Capital requirement of Rs.222 lakhs and the issue expenses of Rs.75 lakhs.
Strengths :
  • The Company is one of the few Indian IT providers to offer comprehensive RFID solutions, which is one of the fastest growing industries in the world today.
  • PGSL is a debt free company; and whole project cost is being funded by equity proceeds alone hence it will be easy for the company to raise loans in event of any further expansions.
  • PGSL is expanding its operations and has acquired CADGIS Consultants in March 2005 for Rs. 96 lacs to be payable partly by issuing 3,00,000 shares of PGSL and balance Rs. 30 lacs by cash. It specializes in geospatial solutions and has strength of 50 professionals having specific domain expertise.
  • PGSL’s sales have grown from Rs.73 lakhs in 2000-01 to Rs.667 lakhs in 2004-05 at a compounded annual growth rate (CAGR) of 55.4%. While the net profit of the company has been increasing at a CAGR of 488.9% from Rs. 0.10 lakhs in FY02 to Rs. 120 lakhs in FY05.
Weakness :
  • The company had made a public issue during 1996 but did not receive the money due on calls and that project failed badly. Against a projected income of Rs. 1300 lakhs in 1999 the company could only earn 7.34 lakhs. The profitability was hit and the company made losses in 1998 and 1999.
  • The ‘Objects of the Issue’ for which the funds are being raised has not been appraised by any Bank or Financial Institution. Fund requirement is the company estimates and the funds received from the issue will be deployed at the sole discretion of the Management.
  • PGSL, a small player in the IT space with only 70 professionals on rolls, is exposed to intense competition from existing large players as well as global players like IBM and Accenture deciding to enter the Indian market and emulate the Indian business model.
  • Compared to its competitors like 3i Infotech Ltd., Geodesic Information Systems Ltd., Hinduja TMT Ltd. iGate Global Solutions Ltd., Logix Microsystems Ltd., Onward Technologies Ltd. PGSL’s pre issue EPS is the lowest at 1.85 For FY05. Its return on net worth (RONW) as on FY05 is amongst the lowest at 6.05%. Its select peer group RONW ranges from 4% to 66.57% and EPS ranges from Rs.4- Rs.10 for FY05.
Valuation :
  • Company has shown 30% YOY growth in FY05 from Rs.513 lakhs to RS.667 lakhs. Also, company’s net profit margins have improved from 16.3% in FY04 to 18.02% in FY05.
  • PGSL’s year ended Sept 05 RONW was 6.05%. The company’s net worth as on 31st Dec.2005 is Rs. 2013 lakhs. Its book-value per share as on 31/12/2005 is Rs.30.96.
  • Post issue EPS for FY05 is Rs. 1.01 per share. The shares are being offered at the price of Rs. 22. At P/E multiple of 29.75, the average industry P/E is 30.24.

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Sharekhan - Cadila Healthcare

Cadila Healthcare
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs850
Current market price: Rs595

Just what the doctor ordered

Key points

  • US generic business to grow exponentially: Cadila Healthcare (Cadila) has made a big entry into the regulated markets of US formulations this year. In the coming years its revenues from the high-margin regulated markets are expected to increase exponentially. It has a strong research and product pipeline with 30 products expected to receive generic approval by FY2007.
  • Strong and steady domestic formulation business to provide a solid base: Cadila is ranked number five in the domestic formulation business in India. It plans to introduce over 40 products in the Indian market in the next two years. We expect the formulation business to be a steady revenue source in the future, showing a higher-than-industry growth rate.
  • Key subsidiaries to start adding value: Cadila has subsidiaries in France, the USA and Brazil, and these were making losses till this year. The French business, earlier expected to break even in FY2009, is now expected to do so even earlier, in FY2008. The US subsidiary is expected to earn good profits for Cadila from FY2007 onwards. We expect these subsidiaries to collectively make a profit of over Rs32 crore in FY2008 as compared with a loss of over Rs30 crore in FY2005.
  • Buy with a price target of Rs850: A strong research-based, integrated pharma player, Cadila is now spreading its wings to the high-margin regulated markets. We expect its consolidated profit after tax (PAT) to grow from Rs117.9 crore in FY2005 to Rs293.8 crore in FY2008, at a 36% CAGR. Considering its strong growth prospects, we initiate our Buy recommendation on Cadila with a 12-month price target of Rs850, which is a 43% upside to the current market price of Rs595.