Ashish Chugh upbeat on Datamatics Global Services

Ashish Chugh, investment analyst & author of Hidden Gems is of the view that Datamatics Global Services revenues are going to increase substantially, which is evident from the first nine months of the current financial year.

Chugh told CNBC-TV18, "Datamatics Global Services is basically IT company and it caters to the KPO business.  They are catering to a number of industry segments like banking and finance, insurance, manufacturing, telecom and retail and publishing. This company merged couple of group companies into Datamatics Global Solutions in FY09, which resulted in reducing the conflict of interest which existed earlier since these companies were into similar businesses.

Their FY11 sales were about 275 crore with a profit after tax (PAT) of about 21 crore. In the first nine months of the current financial year, the company has increased its sales by about 60% to 325 crore, PAT in the first nine months has gone up by about 70% to 22 crore, which is higher than full year profit of last year. It can end the year with sales of close to Rs 425 crore and PAT of about Rs 30 crore.

There are a couple of reasons we like this company. One is this company has been promoted by Mr Lalit Kanodia who was the founding Managing Director of Tata Consultancy Services (TCS), that inspires a lot of confidence as far as the capabilities of the promoters are concerned. Also, their shareholding at close to 73% inspires further confidence. Company is almost debt-free, it does have a small working capital loan in one of its subsidiaries, but by and large this company is debt-free.

It has been growing through both organic as well as inorganic route. If you talk of the inorganic growth, this company merged its group companies in FY09. Then this company acquired the business of a German company in FY09. Last year this company has acquired two companies one is based in Bangalore by the name of Vista Infosystems and then it has taken a majority control in California based company called CIGNEX. With all this, the revenues are going to increase substantially, which is evident from the first nine months of the current financial year.

Also when you talk of organic growth, this company set up a facility in Nasik a few years back, this was in FY08. Recently, it has set up another facility in Puducherry with a capacity of about 700 seats and catering to the e-publishing business. When you look at the valuations of the company, the marketcap at the current price is close to Rs 160 crore. This company has got cash and cash equivalents of about Rs 90 crore. It has got a small working capital loan of about Rs 10 crore. So, the enterprise value of the company at the current market price is close to Rs 80 crore.

Disclosure: I and my family have investments in the above mentioned stock.