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Thursday, February 15, 2018

Sahyadri Industries - Will Stock Deliver Multibagger Returns?

Dear Reader,

We are pleased to inform you that our Hidden Gem stock of July 2017 - Sahyadri Industries Ltd (BSE Code: 532841) which was released on 30th August 2017 has given returns of 68% to our Hidden Gems members within period of 6 months. Our team suggested Buy on Sahyadri Industries Ltd at price of Rs. 173.45 on 30 Aug'17 with a target price of Rs. 330. We are pleased to inform our readers that Sahyadri Industries stock made its 52 week high of Rs. 309.75 yesterday on 14th Feb'18 and closed at Rs. 291.90 today giving as on date absolute returns of 68.3% to our Hidden Gems members in period of 6 months.

The company has declared its Dec'17 quarter results yesterday on 14th Feb'18 which are better than our expectations. Sahyadri Industries reported net profit of Rs 4.30 crore in Dec 2017 quarter as against net loss of Rs 3.22 crore during the previous quarter ended Dec 2016. Sales rose 18% to Rs 57.21 crore in the quarter ended Dec 2017 as against Rs 48.50 crore during the previous quarter ended Dec 2016. The revenue for Dec'17 is net of GST, however the same for Dec'16 is inclusive of excise duty.

If we look at valuations of Sahyadri Industries, we find the stock attractive even at current levels when compared to other players in the Industry. Currently, Sahyadri Industries is trading at 12 months trailing PE multiple of 12.2 whereas bigger players from same sector like Everest Industries, HIL and Visaka Industries are trading at trailing PE multiple of 19.7, 19.9 and 18.6 respectively. Moreover, Sahyadri Industries has maintained best operating and profit margins in the Industry over larger peers during last 4 quarters as illustrated below.
Improved performance with complete turnaround by the company over last 4 quarters shows the management efforts towards increasing operational efficiency and reducing debt with better cash flows from operations. Sahyadri Industries operating margins in Dec 2017 quarter stands at 20.2% which is much better compared to other larger players. Moreover, the company has delivered highest operating as well as profit margins during last 4 quarters when compared to peer group companies.

With increasing thrust of Government on rural sector growth, Sahyadri Industries is expected to be the direct beneficiary. We believe Sahyadri Industries will continue to achieve robust business growth in coming quarters with increase in Government spending towards affordable housing and manufacturing of toilets for rural population.

At current price, stock seems to be significantly undervalued compared to other players in the Industry with significant upside potential. With favourable Industry outlook, Sahyadri Industries if continue its stellar performance like that of last 4 quarters, can turn to be a multibagger stock for long term investors.

Below is the summary of Sahyadri Industries Ltd shared by our team under Hidden Gem stock of July'17 released on 30th August 2017.

Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Sahyadri Industries. 


1. Company Background:


Sahyadri Industries Ltd is a flagship company of the Patel Group based in Pune, Maharashtra. Sahyadri is an ISO 9001:2008 certified, SAP enabled company and is a player in the building material space in India for over 6 decades now. The company is mainly engaged in manufacture of fibre cement corrugated and flat sheets and non-fibre cement flat sheets. The company is also into manufacturing of fibre cement roofing sheets under the brand Swastik, Mezzanine application sheets under the brand Cemply, cellulose fibre cement boards under the brand EcoPro, and Cemply Swachhalay - an innovative Green Toilet Technology made for Swachh Bharat Abhiyan

Sahyadri Industries was incorporated in the year 1994. The group founded by Late Shri. L. B. Patel, who ventured into the trade to timber and building materials, sensing the urban and rural needs for developing shelters to people of all income groups way back in 1947.

The company started its operation as a roofing sheet producer under the brand Swastik. Today the company offers innovative, specialized and futuristic products to bridge the gap between international advancement and technological offerings. With a product portfolio comprising of roofing solutions, well integrated interior and exterior building systems, security doors, power generation and sustainable materials, Sahyadri Industries offers new technologies for metropolitan, urban and rural spaces in India and South Asian, Middle East and African countries.

The sheets are being manufactured by using most modern manufacturing techniques and the latest process control equipments. These sheets are lighter in weight compared to other boards, used in similar applications. They have a good life because the raw materials used are mostly minerals and do not disintegrate or lose their integrity easily.

The company is catering to different geographies, various plants have been set up in Maharashtra, Gujarat, Tamil Nadu and Andhra Pradesh which altogether produce 50,000 MT of roofing materials and 8,000 MT of cement boards every month. Manufacturing plants of the company are strategically located near highway, down freight zones and closer to ports like JNPT, Cochin and Chennai which makes access for exports and imports easier and feasible.  The company has 12 depots across India.

The company is also operating 31 windmills situated in the states Maharashtra, Tamilnadu & Rajasthan with the total capacity of 23.2 MW.  Indian Wind Power Association adjudged the company’s wind mills as Best Performing Wind Farms in the Years 2006-07, 2007-08, 2008-09, and 2010-11.

In a six decade journey, the company has developed range of products across different verticals.

1. SWASTIK  - The company manufactures cement roofing sheets for rural sector under the brand of Swastik The company has built roofs that last longer and are non-corrosive. Swastik provides a complete range of roofing solutions; we offer over 100 roofing accessories with a diverse range of colours to match everyone’s need.

2. CEMPLY - The company ventured into flat sheets and cement doors under the banner Cemply for a variety of applications. The sheets find many applications in both interior and exterior designs, like industrial, commercial, and residential construction spaces.

3. ENTASAFE - The company launched anti-theft doors by the name Entasafe for the urban homes. Entasafe doors have superior strength, aesthetic looks and come with advanced security features, can be customised as per customer needs.

4. ECOPRO - The company introduced innovative product under brand EcoPro - a building material which is wood-free, light-weight and asbestos-free alternative to conventional materials and asbestos products. EcoPro meets the standard set on all platforms, making it an innovative brand to accelerate the development of building material industry.

5. SILBUILD – It is a speedy, innovative and sustainable building solution to enable cost effective quality construction. The systems are factory produced, transportable and erect on site pre-engineering building techniques.

6. SWACHALAY - Swachalay Toilet Blocks units are modular in design and supplied in the form of a kit. It can be erected on site within an hour, ready for comfortable and hygiene use. Swachalays are green toilets made of 35% fly ash and is based on dry wall technology with no use of wartar, sand and bricks in the construction. These safe and secure toilet units are ready for sanitary fittings to be installed before use.

7. SWASTIK KUKDOOKOO - Swastik Kukdooko is a backyard poultry structure. The unit provides better health and hygiene to the chickens helping farmer with an alternative source of income.

2. Recent Developments: (as on 30 Aug'17)

i)  Normal Monsoon & GST to Augur well for Company’s Roofing Sheet Business

Data for the last 15 years shows that there's a high correlation between monsoon and sale of roofing sheets with some lag in India. Post two consecutive years of poor monsoon in 2014 and 2015, last year was relatively better, with better farm output and more disposable income in the hands of rural customers. With monsoon expected to be above normal this year also, we expect roofing sheet business will see good growth for the next two years.

Moreover, higher GST on steel sheets of 28%, compared with 18% on asbestos cement sheet, will give cement sheet manufacturers the extra edge. Also, the asbestos industry competes with steel roofs, as prices of steel sheets have risen in the past year due to higher steel prices, we expect Sahyadri Industries to be the direct beneficiary.

ii) Launch of Innovative Products to Reduce Dependence on Seasonal Products

Fibre cement roofing sheet is a seasonal business. The company is now focusing to reduce its dependence on seasonal products. Under new initiatives, the company has launched some of the innovative products like Cemply Swachalay and Swastik Kukdookoo.

Cemply Swachalay - Swachalay is the ideal green toilet developed by the company to support Govt initiative – Swachh Bharat Abhiyan: These modular toilet blocks can be installed and ready to use in less than 1 hour. Made using cemply fibre cement sheets and doors and swastik roofs, these safe, secure toilet units are ready for sanitary fittings to be installed before use. Cemply Swachalay is ideal for use in residential, school, tourist spots and inhabitants from the tribal or hilly terrains.

Another uniqueness of this innovative green toilet technology is that it does not use water, sand, brick and mortar, typically used in conventional construction. Raw materials used for making the toilets is slag and fly ash which is a byproduct of the thermal power stations hence saving the environment. Swachalay received the ‘Innovative Green Toilet Technology’ Award in 2015 in India Sanitation Summit organized by India CSR Group, held at PHD Chambers, New Delhi.

Swastik Kukdookoo – It is a backyard poultry structure developed by the company to support Indian famers and women to earn a reasonable amount every month as revenue from poultry. The Kukdookoo units provide better health and hygiene to the chickens. It is a DIY (Do-It-Yourself) kit and can be easily set up by 2-3 people at help. A new concept in Poultry production that can yield higher revenue opportunities for the poultry farmer.

3. Financial Performance: (as on 30 Aug'17)

Sahyadri Industries net profit rises 103.40% in the June 2017 quarter

Net profit of Sahyadri Industries rose 103.40% to Rs. 11.37 crore in the quarter ended June 2017 as against Rs. 5.59 crore during the previous quarter ended June 2016. Sales declined 12.09% to Rs. 93.88 crore in the quarter ended June 2017 as against Rs. 106.79 crore during the previous quarter ended June 2016.

Sahyadri Industries reports net profit of Rs 3.38 crore in the March 2017 quarter

Net profit of Sahyadri Industries reported to Rs. 3.38 crore in the quarter ended March 2017 as against net loss of Rs. 1.05 crore during the previous quarter ended March 2016. Sales declined 21.79% to Rs. 61.07 crore in the quarter ended March 2017 as against Rs. 78.08 crore during the previous quarter ended March 2016.

For the full year, net profit reported to Rs. 3.18 crore in the year ended March 2017 as against net loss of Rs. 10.90 crore during the previous year ended March 2016. Sales declined 28.12% to Rs. 258.60 crore in the year ended March 2017 as against Rs. 359.78 crore during the previous year ended March 2016.

The company has posted strong profit growth in Jun’17 quarter. Sahyadri reported net profits of Rs. 11.37 for Jun’17 quarter against net profit of Rs. 5.59 in Jun’16. We expect company will turn around its performance completely during this financial year by reporting profits during next 2 quarters against losses reported for Sept’16 and Dec’16 quarter last year.

4. Peer Group Comparison: (as on 30 Aug'17)

Sahyadri Industries is a smaller player with market capital of ~166 crores operating in fibre cement sheet business. The company has posted strong profit growth in its June quarter with expected turnaround during this fiscal year, which makes it attractive compared to other listed players in the Industry.

5. Key Concerns & Risks:


i) The main raw materials for fibre cement products are cement, pulp, fly ash and imported fibres. Any hike in prices of cement or fibre may have adverse impact on the margin of the company.

ii) Rural schemes like MNREGA, Indira Awas Yojna, etc. play a vital role for the business of the company. Any change or decrease in spending by the government on these schemes could reduce the purchasing power of rural people. A poor monsoon could also have adverse effect on the demand for roofing in rural India.

iii) There is limited pricing power due to large number of players operating in fibre cement products and hence pass through of increased costs is not possible.

6. Saral Gyan Recommendation: (as on 30 Aug'17)


i) Manufacturing plant of Sahyadri Industries at Vijaywada was set up and expenses were capitalized by the company during the last financial year. Similarly, Chinchwad plant of the company was also set up in the FY15-16. The company has incurred large amount of capital expenses for the same, both the plants commenced its manufacturing activities. However, with lower utilization of these plant’s capacity and higher fixed expenses and capital cost, operating margins were eroded as the company was not able to recover its fixed overhead expenses. Hence, the company posted net loss of 10.9 crores in FY15-16 and net profit of Rs. 3.2 crores in FY16-17.

ii) As monsoon plays a vital role in growth of rural economy, market conditions for roofing sheets was adverse due to poor monsoon in past. Last year was relatively better, with better farm output and more disposable income in the hands of rural customers. With monsoon above normal this year also, we expect roofing sheet business of the company to see good growth over next two years.

iii) Due to depressed steel prices in previous years, coloured steel roofs were preferred over asbestos roofing for Industrial and warehousing applications which impacted the growth of fibre cement sheets manufacturers. However, with rising base metal prices which are expected to remain firm, we believe cement sheet will be preferred choice for construction activities going forward. Moreover, higher GST on steel sheets of 28%, compared with 18% on asbestos cement sheet, will give cement sheet manufacturers the extra edge and hence Sahyadri will be the direct beneficiary.

iv) Fibre cement roofing sheet is a seasonal business as industry as a whole depend upon seasonable of demand. Considering downturn in housing and infrastructure sector in past, company has taken new initiatives over last few years to insulate it from seasonability of demand for traditional products. The company started evolving its product line by introducing high margin non-infrastucture related products. Cemply Swachalay and Swastik Kukdookoo are some of the products launched under this initiative. Sahyadri has tied up with several self-help groups such as Dilasa Janvikas Pratishthan to make Swastik Kukdookoo available across India.

v) The company has registered sales CAGR of 4.5% with ROE of 4% over last 5 years. The company’s financials were impacted in past due to high capital expenses incurred towards expansion. The company has reduced its debt significantly over last 2 years.
vi) Due to company’s subdued performance in last couple of years, the management has taken various initiatives and cost control steps. These measures are likely to bring in gradual increase in turnover going forward. The company also intend to focus on increasing its overseas markets share by offering innovative and unique building solutions. As per future plans, innovative product extension, green environment friendly products, and applications like infill walls, solid walls, dry-wall construction system, wall cladding, mezzanine applications, fast-track housing solutions, roof-underlay would be on priority list of the company.

vii) As of Jun’17, promoter’s shareholding in the company is at 66.44%. Promoter’s shareholding is same without any change since March 2015. Promoters have not pledged any shares, Institution shareholding in the company is negligible at 0.01%.

viii) For FY 2014-15, the company paid dividend of Rs. 1.50 per share. The company has not paid dividend later as company incurred losses mainly due to slowdown in rural economy and capacity expansion taken at Vijaywada. With recent turnaround in performance, we expect company to pay regular dividends going forward.

ix) As per our estimates, Sahyadri can deliver PAT of 16.65 crores in FY17-18 and Rs. 19.53 crores in FY18-19 with annualized EPS of Rs 17.4 and Rs. 20.4 respectively. At current price of 173.45, stock is available at forward P/E multiple of 8.5X based on FY18-19 earnings. Company’s valuation looks attractive considering robust growth outlook for cement sheet business with uplift in rural economy over next 1 to 2 years.

x) On equity of Rs. 9.56 crore, the estimated annualized EPS for FY18-19 works out to Rs. 20.4 and the Book Value per share is Rs. 123. At current market price of Rs. 173.45, stock price to book value is 1.3.

Government’s initiatives with focus on rural economy will help in improving disposable income in rural India, and that will have positive impact on the company’s business of roofing and other building materials. Considering rise in rural spending with favourable monsoon, company’s plan to reduce its dependency on seasonal products by introducing high margin non infrastructure related products, increasing focus on exports, and company’s improved business fundamentals with robust growth outlook, Saral Gyan team recommends “Buy” on Sahyadri Industries Ltd at current market price of Rs. 173.45 for target of Rs. 330 over a period of 12 to 24 months.

Buying Strategy:
  • 60% at current market price of 173.45
  • 40% at price range of 130 - 140 (in case of correction in stock price in near term)

Portfolio Allocation: 3% of your equity portfolio.

To Read / Download Saral Gyan Hidden Gem - July'17 Research Report - Click Here

If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks. 

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.

Subscribe to Hidden Gems & Value Picks and start investing systematically. Avail attractive discounts by subscribing to our combo packsclick here for details.

Do contact us in case of any queries, we will be delighted to assist you. 

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan.

LEGAL DISCLAIMER: Saral Gyan Capital Services (hereinafter referred as 'Saral Gyan') is an independent equity research Company. Use of the information herein is at one's own risk. This is not an offer to sell or solicitation to buy any securities and Saral Gyan will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Before acting on any recommendation, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. All content and information is provided on an 'As Is' basis by Saral Gyan. Information herein is believed to be reliable but Saral Gyan does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Saral Gyan may hold shares in the company/ies discussed herein. As a condition to accessing Saral Gyan content and website, you agree to our Terms and Conditions of Use. The performance data quoted represents past performance and does not guarantee future results.

Tuesday, February 13, 2018

Hidden Gems & Value Picks 2017 Vs Small & Mid Cap Index

Dear Reader,

At current situation, how does one know the right stock to invest in and that too at the right price which will ensure strong returns in the long term? This will be a question that will be the uppermost in the minds of most investors wanting to allocate part of their funds towards stocks. Especially in light of the heightened volatility in the markets in the past.

For instance, take a look at the period between 2005 and early 2008. During that time, there was a general sense of euphoria prevailing in India what with the country consistently logging in growth rates of 9% plus and the stock markets zooming to 21,000 levels. And then this optimism snapped.

The global financial crisis reared its ugly head and sent global economic growth and world stock markets including India into a tailspin. Suddenly there was nervousness all around. Forget bad stocks with bad fundamentals, retail investors in India were loathe to put in their money even in good companies available at attractive prices fearing that prices will fall down further. Then 2013 dawned, signs of recovery began to be noticeable and stock markets surged once again. And with stable government in place, major indices Sensex and Nifty made all time highs this year.

Before the demonetisation event, India was on the track of recovery with factors like normal monsoon, seventh pay commission, public infrastructure investments and low crude oil price favouring it. However post demonetisation and later with implementation of GST last year, we have seen sluggish growth till Sept'17 quarter followed by significant earning growth in Dec'17 quarter. We firmly believe that implementation of various reforms by the government over last 2 years will help Indian economy to grow at a faster pace in coming years.

Since beginning of this year, we have seen correction in  broader indices with significant fall in stock prices. Corrections in bull market are healthy and give opportunity to invest. Such corrections in bull markets do test your patience and conviction. If you expect a straight-line appreciation in stock markets, that is not going to happen. Profit bookings at regular intervals bound to bring the indices lower. Such opportunities must be considered to add good quality companies available at lower prices.

The idea really is not to time the markets. That is a feat best left to speculators. For long term investors, even at present when overall valuations of companies seem on the moderate side, there will still be stocks that they can look to add on to their portfolios. These stocks if picked at the right price by proven approaches can turn into multi-bagger opportunities.

We are pleased to share that Hidden Gems (Unexplored Multibagger Small Cap Stocks) and Value Picks (Mid Caps with Plenty of Upside Potential) recommended by our equity analysts in 2017 have outperformed small and mid cap index by wide percentage points ensuring much better returns for our members.

Below is the performance update of small and mid cap stocks recommended by us in 2017 under our Hidden Gems and Value Picks subscription service:
As illustrated in the table above, average returns (as on date) of Hidden Gems stocks recommended in 2017 is 41.9% compared to small cap index average returns of 18.8%. As on date, Hidden Gems stocks are outperforming small cap index by 23.1%.

Our Value Picks stocks of 2017 also outperformed Mid Cap Index. Average returns (as on date) of our Value Picks stocks is 40.2% compared to average returns of 13.4% of mid cap index, out-performance of 26.8%.
At Saral Gyan, team of equity analysts keep on evaluating small and mid cap stocks to explore the best Hidden Gems and Value Picks of stock market. Saral Gyan - Hidden Gems and Value Picks are the small and mid cap stocks with high probability to become multi-bagger stocks in future and a path for our investors to create wealth through equity investments in a long run.

Under our Wealth-Builder service, we encourage our members to replicate our Wealth-Builder portfolio by investing in selective high quality small and mid cap companies. These companies are reporting 20-30% + annualized growth and got their due share of re-rating and delivered exceptional returns to our members so far. Since 1st Jan 2013, Nifty has given returns of 77.1%, Sensex returns is 75.2% where as Wealth-Builder portfolio has given returns of 341.3% returns to our members. In case you have not yet started building a portfolio of high quality and fundamentally strong growth stocks for long term wealth creation, please find below the Wealth-Builder portfolio allocation & performance update for your reference.

We believe, investing in Wealth-Builder portfolio with regular portfolio review from our end can help you achieve market beating, very good returns over a longer team and help you take care of yourself and your family needs, which ultimately lead to a healthy and wealthy life after retirement.

We also take this as an opportunity to inform our readers that our Combo - 2 (Annual subscription of Hidden Gems, Value Picks and 15% @ 90 Days) is the best selling subscription service at Saral Gyan, we have registered maximum subscription of Combo 2 since beginning of this year followed by Combo 1 subscription which includes Wealth-Builder (an offline portfolio management service) also. We keep on updating our members on our past recommendations suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.

Now you can add power to your equity portfolio by investing in best of small & mid cap stocks - Hidden Gems & Value Picks. Avail attractive discounts by subscribing to our combo packs. Below are the details of our annual subscription charges, simply click on SUBSCRIBE! link to subscribe to our services online using debit / credit card or net banking facility.

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Saturday, January 13, 2018

Value Pick Stock - Sonata Software - ROI @ 75% in 1.5 Years

Dear Reader,

We are pleased to inform you that our Value Pick stock of June 2016 - Sonata Software Ltd (BSE Code: 532221, NSE Code: SONATSOFTW) which was released on 10th July'16 is giving as on date returns of 168% to our Value Picks members. We suggested Buy on Sonata Software at price of Rs. 171 on 10th July'16 with a target price of Rs. 240. Stock has already achieved our target price and we advise our members to continue to hold the stock. Sonata Software stock price made its 52 week high of Rs. 312 on NSE recently and closed at Rs. 299.40 yesterday giving absolute returns of 75% in period of 18 months.

Below is the summary of Sonata Software Ltd shared by us under Value Pick stock - Jun'16 released on 10th July 2016.

1. Company Background:

A mid-sized IT services company headquartered in Bangalore, Sonata Software has presence in the US, UK, Europe, APAC and Middle East. The company operates in two major business units: International IT services (IITS) and domestic products and services (DPS).

Within IITS, the company caters to travel, retail & CPG, and OPD verticals. Sonata provides consulting, ADM, ERP, testing and IMS. In the DPS segment, the company, through its subsidiary Sonata Information Technology Limited, sells software products in India. These include licences for Microsoft, SAP, Oracle, Abode, IBM, HP and TIBCO.

Sonata is a global IT services company with a track record of serving leading Independent Software Vendors and Enterprise Customers around the globe. Its unrelenting focus on going deeper with domain knowledge, technology expertise and customer commitment, coupled with people skills, strong delivery mechanism and expanding global footprint makes it a strategic IT partner of choice. Sonata's services are as under:

Product Engineering and Services: Sonata offers end to end product engineering services from high end technology consulting to product lifecycle management and professional services.Sonata's dedicated Centers of Excellence in the areas of Java, .NET, Cloud, Mobility and BI equip it with the right skills in technologies and processes, consolidate its experiences and develop thought leadership so that the company can effectively serve our customers.

Application Development and Management: Sonata provide application development and management services leveraging Open Source and Microsoft technologies. Its Application Development and Management services are strategic, in that it works closely with customer's business functions, understand the pain points, identify areas of improvement, and provide holistic solutions and support that translate to tangible business results.

Testing Services: Sonata offers specialized testing services like integration testing, Functional & Regression testing, Performance testing, Security testing, Enterprise Applications testing, Globalization / localization testing, Compatibility testing, Deployment testing, Product configuration testing, Web services testing, Mobility testing, Data migration / product upgrade testing etc.

Cloud Computing: Sonata's Cloud computing specialists analyze customer’s current IT application and infrastructure portfolio to Create a Cloud computing strategy, build a business plan and design a roadmap for Cloud adoption; Identify and recommend suitable Cloud Computing models for various IT and business needs - IaaS, PaaS, SaaS, Identify and recommend appropriate deployment models – Public Cloud, Private Cloud or Hybrid Cloud.

Infrastructure Management: Today, more than ever, developing thoughtful IT Infrastructure Management strategy and partnerships has become very critical for business success. With over 15years of experience and 30+ customer engagements, Sonata knows what it takes to derive the best from investments in IT infrastructure. It leverages its in-depth industry knowledge, best practices, technical expertise and Global Delivery Model to offer consultancy, design, implementation and Remote Infrastructure Management Services that matter.

2. Recent Development: (as on 10th July'16)

i) Sonata Software exhibits leading digital travel technology solutions at the Arabian Travel Market – April 2016

Sonata powers some of the largest players in the tour operator, corporate travel, online travel, rail and airline segments across the globe with its technology solutions. At the event, Sonatashowcased its digital travel solutions and platforms that provide a complete end-to-end solution for managing customer experience and smart operations to help reinvent travel businesses.

These travel solutions are built on proven technologies and include Rezopia, a cloud-based travel ERP system, TravelPlus a hybris based travel commerce accelerator, Halosys, a unified enterprise mobility platform, and Transit – big data ready analytical platform for the travel vertical. These solutions from Sonata have won recognitions such as hybris Most Innovative Partner award and Travel Weekly Magellan awards.

ii) Sonata's Technology Infrastructure Group receives SAP® APJ Partner Excellence Award 2016 for "Top Sell Partner" – Feb 2016

Sonata’s Technology Infrastructure Group informed that it is the recipient of an SAP® APJ Partner Excellence Award 2016 for Top Sell Partner. Awards were presented by SAP (NYSE: SAP) to the top-performing SAP partners in the APJ region that have made outstanding contributions to driving our customers’ digital transformation. Recipients of this year’s awards have been – in partnership with SAP – helping customers adopt innovation easily, gain results rapidly, grow sustainably and run more simply with SAP solutions

Selected from SAP’s wide-ranging partner base, nominations for the SAP Partner Excellence Awards were based on internal SAP sales data. A steering committee composed of regional and global SAP representatives determined winning partners in each category according to numerous criteria such as sales achievement and performance. Awards were presented in a variety of categories, including overall sales, innovation, technology, services and solution-specific areas.

iii) Sonata Software acquire 100% stake in Interactive Business Information Systems Inc. – Oct 2015

Sonata Software informed that its wholly owned subsidiary in Atlanta, Sonata Software North America Inc. signed definitive agreements to acquire 100% stake in Interactive Business Information Systems Inc., a Georgia Corporation which has a strategic partnership with Microsoft for the Dynamic solution and delivers world class supply chain solutions, including its proprietary advanced supply chain software solution.The acquisition has been done for an upfront payment of $8.6 million in cash and $5.4 million as earn outs payable over two calendar years ending 2017.

3. Financial Performance:

Sonata Software consolidated net profit rises 17.23% in the March 2016 quarter

Net profit of Sonata Software rose 17.23% to Rs 40.83 crore in the quarter ended March 2016 as against Rs 34.83 crore during the previous quarter ended March 2015. Sales rose 37.78% to Rs 540.44 crore in the quarter ended March 2016 as against Rs 392.26 crore during the previous quarter ended March 2015.

For the full year, net profit rose 18.62% to Rs 158.59 crore in the year ended March 2016 as against Rs 133.70 crore during the previous year ended March 2015. Sales rose 15.35% to Rs 1938.52 crore in the year ended March 2016 as against Rs 1680.51 crore during the previous year ended March 2015. 

Sonata Software consolidated net profits rises 12.66% in the Dec 2015 quarter

Net profits of Sonata software rose 12.66% to Rs. 40.23 crore in the quarter ended Dec 2015 as against Rs. 35.71 crore during the previous quarter ended Dec 2015. Sales rose 11.83% to Rs. 521.56 crore in the quarter ended Dec 2015 as against Rs. 466.37 crore during the previous quarter ended Dec 2014.

4. Investment Rationale: (as on 10th July'16)

i) Within the IITS segment, Sonata serves three focus verticals: Travel, Retail and CPG, and OPD. The others segment comprises smaller verticals such as manufacturing, pharma and financial services. Sonata provides ADM, ERP, testing, business intelligence, cloud and IMS services to clients in these verticals. From a service line perspective, Sonata derives maximum revenue from ADM, followed by testing, AX (Microsoft Dynamics ERP, IMS and e-commerce.

ii) Sonata is targeting to double the IITS revenue in the next 3 years, thus implying US $200mn revenue by FY19. Company needs to grow its revenue in this segment by 22-23% CAGR over FY16-FY19 which seems to be challenging considering growth in past. However, the company may go through the acquisitive route to drive its revenue growth to achieve the same.

iii) Sonata continues to build, integrate and acquire platforms across Ecommerce, Analytics & DevOps to complete portfolio for ‘Future Ready’ IP led solutions. Sonata offers platforms like Rezopia (Reservation, Distribution, Contracts & Operations on one single Cloud Platform), Halosys (Core features of MADP, MAM, MBaaS & APIs on a single, unified mobile platform), IBIS (Advanced Supply chain Software for Distributors, Manufacturers & Retailers) and RETINA (Big Data ready Retail Analytics Platform).

iv) Sonata offers Cloud & Mobile engineering ERP for SaaS enablement, Engineering Omni Channel retail systems on a new technology stack and enables next gen Rail reservation and ancillary services. Company’s solution Rezopia Travel SAAS is customized to next gen reservation systems, it is cost effective and offers quick transition from legacy systems & continuous feature upgrades with releases.

v) Sonata is increasing its focus on technology platforms. The company acquired Rezopia, a cloudbased travel ERP platform in August 2014 and Halosys, an enterprise mobility technology provider, in August 2015. While Rezopia is a vertical-focused platform, Halosys can be offered as a vertical-agnostic one and can be sold across verticals. This can be a potential growth driver over the next few years for the company.

vi) Travel and retail have been key growth verticals for Sonata over the past six quarters and account for 54% of revenues, we expect company to deliver robust growth in these verticals going forward. From a geographical perspective, the IITS segment derives a majority of its revenue from the US (51%), 34% from Europe (including the UK) and the balance from emerging markets like Dubai, Qatar and India. We expect the US to remain the key growth driver going forward.

vii) The DPS (Domestic Products and Services) business enables the company to build strategic partnerships with large ISVs. Sonata runs this business through its subsidiary, SonataInformation Technology Limited. The company distributes product licences of numerous large ISVs such as Microsoft, Oracle, IBM and TIBCO. While margins are low owing to its trading nature, the segment allows Sonata to establish strategic relationships with major ISVs, thus driving cross-selling efforts in its IITS business.

viii) Technology Infrastructure is a strategic fit to overall Sonata business. Company offers wide portfolio of technology solutions with leading and emerging partners which includes Microsoft, SAP, Oracle, IBM, Adobe, Symantec, Redhat, Intel, Informatica, Appcelerator etc. Strategic partnerships with leading technology providers – Microsoft, SAP, Oracle, Appcelerator act an advantage in accessing emerging technology solutions. It provides 360 degree footprint across Engineering, Implementation, Go to Market in IT value chain in key technologies – e.g. Dynamics AX.

ix) The company wants to focus on higher value added products such as cloud and security to drive growth and margins in its DPS business. Owing to its capex-light nature, the business earns healthy RoCE of 25%. The key focus areas for Sonata in the DPS segment are improving margins and RoCE, with its capex-light nature driving higher asset turns.

x) Company is maintaining healthy dividend payout of 55% which is significantly high compared to other players. Dividend paid by the company is increased from Rs. 0.50 per share in FY12 to Rs. 9.00 in FY16. Dividend yield at current market price of Rs. 171.20 is 5.3% which is quite attractive and limits the down side risk in stock price from current levels.

xi) The company has delivered profit and sales CAGR of 10.4% and 4% respectively over last 5 years. Return on equity (ROE) in last 5 years is at 14.3% which is improved to 32.7% over last 12 months. Promoter’s shareholding in the company as on Jun’16 is 30.95% out of which 1.15% is pledged, institutional and non-institutional shareholding in the company is 16.67% and 50.90% respectively.

5. Key Concerns & Risks:

i) With a significant portion of company’s revenues coming from exports, volatility in exchanges may impact company’s business adversely. The company transacts its revenue in more than one currency, this exposes it towards a risk of making losses as a result of currency price fluctuation. The company uses foreign currency forward contracts to hedge its risks associated with foreign currency fluctuation.

ii) Regional concentration as well as vertical concentration can adversely impact company’s business in case of a slowdown. As like for all mid-tier IT services companies client concentration is a significant risk. The company’s top clients contribution is nearly 70% of revenues of IT services. However, the company monitors this risk and continues to further diversify its business in terms of regional and vertical exposure on ongoing basis.

iii) The ever increasing competition poses a key risk in terms of acquiring client business as well as human talent.

6. Saral Gyan Recommendation: (as on 10th July'16)

As per our estimates, company can deliver PAT of 188 crores for full financial year 2018, annualized EPS of Rs. 17.9 with forward P/E ratio of 9.6X for FY18 which makes it attractively valued compared to other mid-size companies operating in IT sector.

Considering growth prospects with improving operating metrics, healthy balance sheet and high dividend yield with attractive valuations compared to peer companies,​ Saral Gyan team recommends "Buy" on Sonata Software Ltd at current market price of Rs. 171 for target of Rs. 240 over period of 12 to 24 months.

Buying Strategy:
  • 60% at current market price of 171
  • 40% at price range of 145-150 (in case of correction in stock price in near term)
Portfolio Allocation: 3% of your equity portfolio.

An opportunity missed an opportunity lost. If you have patience and want to add extra power in your portfolio, start investing some portion of your savings in fundamentally strong small and mid cap companies - Hidden Gems & Value Picks.

Time has shown that smart investors have made their fortune by investing in equities in long term. None other asset class can match giving you such extra ordinary returns. Yes, its important for you to invest in right set of companies at right price with medium to long term perspective. If you think to invest in stocks for period of 3 months or 6 months, we suggest you to stay out of stock market because you are not investing, you are betting on volatility of stock market which could be risky.

The stocks we reveal through Hidden Gems & Value Picks are companies that either under-researched or not covered by other stock brokers and research firms. We keep on updating our members on our past recommendation suggesting them whether to hold / buy or sell stocks on the basis of company's performance and future outlook.


Add power to your equity portfolio by investing in best of small and mid cap stocks - Hidden Gems and Value Picks. Its our mission to ensure that you reap the best returns on your investment, our objective is not only to grow your investments at a healthy rate but also to protect your capital during market downturns. Now you can avail attractive discounts by subscribing out our combo packsclick here for details.

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Regards, 

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Thursday, January 11, 2018

Capital First Ltd - 15% @ 90 Days - Dec'17 Target Achieved

Dear Reader,

Capital First Ltd was recommended as 15% @ 90 Days stock at price of Rs. 702.65 on 25th Dec'17 with target price of Rs. 815 (upside potential of 16%). We are pleased to inform that Capital First has achieved its target price in period 15 days, stock made 52 week high of Rs. 840 today and closed at Rs. 835.70.

As 15% @ 90 Days service is based on buy to sell and gain strategy, we informed our members to book complete profits in Capital First at Rs. 817 pocketing returns of 16.3% in period of 15 days.

To view/download 15% @ 90 Days stock recommendation of Dec 2017, click here

Imp Note: We do not suggest our members to put all their savings in 1 or 2 stocks to make quick bucks, diversified portfolio is must to have while investing in equities. Our 15% @ 90 Days stock is recommended on the basis of technical analysis (chart patterns) and there is no guarantee of getting 15% returns within 90 days. However, probability of our 15% @ 90 Days stocks achieving their target price is high.

We suggest our members to allocate only 2% of their equity portfolio in our 15% @ 90 Days stocks and do a higher allocation in our Hidden Gems and Value Picks which are the companies backed with strong fundamentals and can reward investors with handsome returns in medium to long term.

To know more about our 15% @ 90 Days annual subscription service, click here.

Annual subscription charge of 15% @ 90 Days service is INR 4,000. To subscribe to our 15% @ 90 Days service online (using debit / credit card or net banking facility), click here.

You can also subscribe to our other services i.e. Hidden GemsValue Picks and Wealth-Builder and start investing systematically. Now you can avail attractive discounts by subscribing out our combo packsclick here for details.


Do contact us in case of any queries, we will be delighted to assist you.

Wish you happy & safe Investing. 

Regards, 
Team - Saral Gyan