Buy Allied Digital, target of Rs 405: FINQUEST

Finquest Research is bullish on Allied Digital Services and has maintained buy rating on the stock with target price of Rs 405.

FINQUEST research report on Allied Digital Services.

IT infrastructure outsourcing is being touted as the next big opportunity for the Indian IT players after software application development and process outsourcing (BPO). Amidst large players like Wipro InfoTech, HCL Comnet, CMC operating in this vertical Allied Digital is the dark horse. From being in the traditional system integration business which involves deploying IT infrastructure to enterprises the company has diversified into a variety of new services like Remote Managed services(Network operating centre, Security operating center) and offering a variety of integrated solutions like RFID implementation, control systems, mobile value added services etc. Investment Argument

Allied Digital has a well diversified business model with a combination of IT infrastructure solutions (78% of revenues) and services business (22% of revenues) and caters to a diverse customer base across the BFSI, Manufacturing, Retail, Telecom and BPO Verticals. 

Though the system integration business which accounts to nearly 72% of the revenues has low EBIDTA margins(around 10%) the new businesses like integrated solutions,remote managed services and other managed services are set to grow aggressively and enjoy higher EBIDTA margins in the range of 40-50% 

The strong order book which currently stands at Rs 1200 million executable over the next one year and robust demand from enterprises in upgrading to IT infrastructure is likely to drive the top line at 55% CAGR over the next two years. 

The newly set up NOC/SOC in tie up with E-Cop which enjoys 90% market share in the BFSI vertical in Far East is likely to generate robust traction for the remote managed services. Valuations We expect the company to report a top line and bottom line growth of 57% and 60% CAGR over the next two years. We discount the FY2009 EPS at a conservative P/E multiple of 12 which yields a price of Rs 405 an upside of 38% from the current price.