Google Finance
Filing
Mar. 03, 2017
2016 Data
Current Price: $17.50
1.Basic Information
(1) History
The company was created by Bharat Desai and his wife at 1980 to provide software service. It went IPO at 1997 for around $100m/year revenue. Now after 20 years of IPO, its revenue is around $1B. It is mainly on software outsourcing to India. It seems just grow revenue organically while not through M&A.
(2) Business related:
It outsourcing, the lower requirement part which take care of day to day business operation of client.
KPO: Knowledge Process Outsourcing, the higher requirement part like software dev. etc.
The company seems pretty capital light with only $100m in assets. Also it has several fixed campus in India.
(3) Management.
Bharat Desai: The founder of the company and still quite actively manage the business.
(4) Debt and Credit facility.
Around $500m in debt and $100m in cash. The debt is mainly from 2016's dividend payment. $300m in term loan. $200m in revolver. Interest rate is quite low around 2.2%.
(5) Insider holding, options, Insider trading info, share buy back.
(7) Auditor
(8) Industry comparison.
The whole IT outsourcing industry in India is around $150B/year. It is very big percentage of India's GDP. Currently there are main companies mainly outsourcing from India.
The whole IT outsourcing industry
Infosys: $9B in annual revenue.
(9) Major events
2. Financial data.
3. Valuation
Based on current $200m/year net income, its P/E ratio is only about 7.5. If based on the forecast $150m-$170m/year income level, its P/E still under 10. If using $200m as a normalize income and use 12 P/E. The fair value could be $28.5/share.
The big decrease in the earning outlook actually mainly caused by the interest income & expense. Previously it has around $50m/year other income related to interest and investment income. Now the company has $500m in debt which will have around $12m/year in interest expense. Totally it will at least have $50m less in other income.
Also if the revenue will be down, the net margin will be down a little bit. A 2% drop will cost around $20m/year less in income. So the estimated $150m-$170m level income is quite reasonable and is not a big change in outlook of the business.
4. Risk
(1) The Trump government might be unfriendly to those outsourcing companies and the new H1B visa policy might affect the companies margin by several percent.
(2) Not quite understand about the whole outsourcing industry. It might shift quite fast in some cases.
5. Conclusion
Based on current earning or even forecast 2017 number, the current price is quite cheap. The company's management is quite strong and historically they did very well. Eventually the ability and the competitive of the management team is the key for the company to recover back to its previous level. Overall I do have some confidence on them.
Bharat Desai: The founder of the company and still quite actively manage the business.
(4) Debt and Credit facility.
Around $500m in debt and $100m in cash. The debt is mainly from 2016's dividend payment. $300m in term loan. $200m in revolver. Interest rate is quite low around 2.2%.
(5) Insider holding, options, Insider trading info, share buy back.
Desai and his wife own around 70% of the total shares.
(6) Employee numbers
It has 23k employees at end of 2016.(6) Employee numbers
(7) Auditor
(8) Industry comparison.
The whole IT outsourcing industry in India is around $150B/year. It is very big percentage of India's GDP. Currently there are main companies mainly outsourcing from India.
The whole IT outsourcing industry
Infosys: $9B in annual revenue.
(9) Major events
At Q3 2016, the company distributed $15/share special dividend and recorded $270m in tax expense.
At Q4 release the company forecast $900-$945m revenue and $1.75-$2.00/share net income for 2017.
At Q4 release the company forecast $900-$945m revenue and $1.75-$2.00/share net income for 2017.
3. Valuation
Based on current $200m/year net income, its P/E ratio is only about 7.5. If based on the forecast $150m-$170m/year income level, its P/E still under 10. If using $200m as a normalize income and use 12 P/E. The fair value could be $28.5/share.
The big decrease in the earning outlook actually mainly caused by the interest income & expense. Previously it has around $50m/year other income related to interest and investment income. Now the company has $500m in debt which will have around $12m/year in interest expense. Totally it will at least have $50m less in other income.
Also if the revenue will be down, the net margin will be down a little bit. A 2% drop will cost around $20m/year less in income. So the estimated $150m-$170m level income is quite reasonable and is not a big change in outlook of the business.
4. Risk
(1) The Trump government might be unfriendly to those outsourcing companies and the new H1B visa policy might affect the companies margin by several percent.
(2) Not quite understand about the whole outsourcing industry. It might shift quite fast in some cases.
5. Conclusion
Based on current earning or even forecast 2017 number, the current price is quite cheap. The company's management is quite strong and historically they did very well. Eventually the ability and the competitive of the management team is the key for the company to recover back to its previous level. Overall I do have some confidence on them.
