Citigroup is bullish on Sasken and has recommended buy rating on the stock.

Citigroup report on Sasken:

Initiate at Buy: Turnaround of Products Business Not Factored In

Target price implies around 40% upside — Strong presence in offshore R&D services and a turnaround in the products business in FY08E should ensure strong earnings momentum for Sasken in FY06-09E.

Services business on a strong footing — Growth in the services business is being driven by higher acceptance of offshoring in R&D services. The services business has marquee clients such as Nortel and Nokia. We expect the business to register revenue and EBITDA CAGRs of 42% and 36% over FY06- FY09. The Botnia acquisition has added further momentum to growth.

Products business should turn around in FY08E — Sasken has been making significant investment in creating software for mobile phones. We forecast a 52% revenue CAGR over FY06-09 and a turnaround in FY08 for this business, with shipments expected to start over the next few months.

Products business value not factored in — The loss-making products business has been a drag on overall profits, hence the stock looks expensive on P/E. We value the products business on a P/S basis and the services business on EV/EBITDA. Our sum-of-the-parts target price is Rs653.

Risks — Aside from sector risks, the products business has a high risk profile on the technology front and is exposed to delays in handset shipments.