Patherya's view on Megasoft

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Patherya's view on Megasoft

Megasoft is available to at a market cap of Rs 110 crore. The company is into mobile technology which is mobile phone technology, says Mudar Patherya, Investment Advisor.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by Mudar Patherya See what other Experts & Brokerages are saying about Megasoft See messages about Megasoft Megasoft BSE | NSE 30/05/12 Are Mutual Funds betting on Megasoft?

Megasoft is available to at a market cap of Rs 110 crore. The company is into mobile technology which is mobile phone technology, says Mudar Patherya, Investment Advisor.

Patherya told CNBC-TV18, "Megasoft is available to at a market cap of Rs 110 crore. It has had a troubled past which is the opportunity. The company is into mobile technology which is mobile phone technology, in retail segment, I would say even mobile mass advertising segment. It's into 2G and 3G game."

He further added, "They have got two aspects to their income - one is annuity and the other is it's a products  telecom products company. People hear telecom product and immediately shy because they feel that the revenues are never going to be sustainable. 75% of the company's business is right from annuity income, annuity revenues."

"I am looking at the balance sheet side where some very interesting things are beginning to happen. They had a land parcel, which they have already liquidated last year. They have got fair amount of money and they scaled down their debt. They have still got some long term debt on the books. I would recon around Rs 50 crore. They have got another land parcel in Vizag. They have already demonstrated their commitment to liquidate land, utilize the cash flow and liquidate debt."

"I would recon that the second round could well happen this year. If they sell off the Vizag property - again there is going to be cash inflow, which liquidates their debt. Effectively I would recon that this year, worst case - next year it
becomes a zero debt company and that's very interesting news."

"You are zero debt, you have market cap of Rs 100-110 crore. Best of all you have an EBITDA margin in excess of 30%. So let's assume you have got an EBITDA margin in excess of 30% and you have got reasonable revenue growth
- I am not even saying significant - reasonable revenue growth."

"With reasonable revenue growth you are at Rs 180 crore for the current year or you would be about close to about Rs 200 crore for current year. If you are at Rs 180, let's say 200 - 30-31% EBITDA margin is about Rs 60 crore of EBITDA sitting on your books with relatively low interest outflow. So all you need to really do is account for your depreciation and account for your tax. When that kind of scenario starts emerging, there is going to be a huge re-rating on this counter."

"The moment you see a little sustainability in the revenue cycle maybe for the next year, will people start believing that story, there could be a significant upward movement. It's already profit making."