Gemini Communications

Investors can continue to hold the shares of Gemini Communication, considering its good business prospects on the back of deal wins and rising governmental IT spends.

At Rs 209 (pre-split), the stock trades at 15 times its FY-08 earnings and 13 times its likely current year earnings, based on conservative growth estimates. At this level, though not exactly comparable, the stock commands valuation of the more integrated players such as CMC. But the momentum in deal wins, such as in e-governance and those from BSNL, hold promise for Gemini. The company is a system integrator and provides networking solutions to clients in the telecom wireless, wireline and IT infrastructure segments.

Gemini also has acquired two companies which are now its subsidiaries — Point Red Telecom and Traze RFID — players which have managed to help the company cater to WiMax and RFiD requirements of clients. Though IT infrastructure-related deals have gathered considerable momentum, the telecom and wireless vertical (contributing 35 per cent of the revenues) also holds potential.
Government IT deals hold the key

Gemini has been able to win many key deals over the past year and has been able to sustain the momentum in recent times. These are deals won from IT-enabling initiatives of various State governments. Two key deals that need to be highlighted are those from the Tamil Nadu Electricity Board and BSNL.

The TNEB deal envisages computerising and connecting all collection centres. The Rs 260-crore worth BSNL deal was won in partnership with Midas Communication and entails Gemini providing broadband connectivity to Tamil Nadu, Karnataka and Haryana.

The nature of these deals is such that there may be one-time receipts followed by annuity and upgrade/update related revenues, providing reasonably long-term revenue visibility. There are other deals too, won from government clients. These include computerisation of schools in many States. Such deals have seen Gemini partner with players such as Everonn Systems and, thus, enhance its client base as well.

With the Budget indicating sizeable outlays on e-governance and computerisation of citizen services, Gemini, with its existing clientele, appears well-placed to tap opportunities.
Wireless and Telecom Vertical shines

The company also provides solutions in the telecom and wireless space with a greater focus on ‘last-mile’ connectivity. This aspect being critical for voice and data communication, especially for Internet service providers, Gemini may tap impending opportunities. The company, after the acquisition of Point Red, was able to tap newer opportunities in technologies such as WiMax. The government’s impending announcement of WiMax policy may hold positives for Gemini.

Through Point Red, Gemini has been able to win deals from international clients such as China Mobile and Botswana internet. It also has domestic clients such as Sify and Bharti.

The company also offers solutions relating to network planning, site surveys and infrastructure rollout and has inked deals with strong players such as Ericsson and Huawei. The number of cell-sites is set to expand sharply due to existing operators’ expansion plans and newly-licensed players and the requirement of a rural reach. This suggests considerable potential in this segment. Gemini, even if it taps a small part of this market, could see a scaling up of revenues.
Other services foray

The company, through the acquisition of Traze RFID, has been able to tap into opportunities in this area. The company hopes to benefit by tapping retail majors in the US. Gemini also hopes to explore opportunities in the RFID space by providing ‘smart tags’ for tracking vehicles and goods for manufacturing, retail and logistics companies. The benefits from such forays remain to be seen.
Risks

With the increase in government clientele, the receivable days could increase, creating pressure on working-capital requirements. The company’s interest costs have been increasing steadily on the back of outlays to implement deals.

Competition from integrated IT infrastructure players such as CMC, HCL Infosystems, Tulip Telecom and Wipro Infotech is a threat. Segments such as RFiD feature competitors such as Bartronics.