Teledata : 8 to 80- Transformation or Illusion ?

Exceptional turnaround but Promoter Stake a cause for Concern

This stock has been one of the most debated stock in recent times. And I know it was cursed, many a year ago, as a stock which has duped many investors of their hard earned money. Yes, We are talking of Teledata Informatics. I had been getting emails from the readers on the prospects of this stock given its rise from Rs. 8 to Rs. 80 and it made me write this post for the benefit of the readers. Let's see what is going on with the company and its stock price and what are the future prospects !

Teledata on Investment Guru Blog
July 13,2005 This was the day on which I wrote a post on Teledata informatics stating that the stock is a dark horse and should be kept on watchlist. And I know this post drew large number of comments both positive as well as negative from the readers. The stock was then trading at Rs 28 down from its high of Rs. 60. Things changed from bad to worse from then and the stock price plummeted to Rs. 8. However, the situation took a turn and the stock never looked back ! So what's behind the transformation of this stock or will it turn out to be another illusion ? Let's find out.

About Teledata
Teledata Informatics Ltd is a global software solutions company providing enterprise-wide solutions for the Marine, Education, Utility and Telecom sectors. With over 2600 employees globally, Teledata is the only company in Asia to offer comprehensive Marine software solutions. The company has a vision to position itslef as a leading technology solutions provider and be among the top 20 global IT companies by 2010.

The Steward
The Chairman Gp. Capt. K. Balasubramanian IAF (Retd.) is a Graduate Mechanical Engineer, M.Sc (Engineering Cranfield -U.K), and an M.B.A from Madurai Kamraj University. He joined the Indian Air Force in the year 1962 as Pilot officer and rose to the rank of Group Captain before his retirement in 1994.He is currently Chairman of the company. He plays a key role in defining the company strategy and in continuously using technology and innovation to maintain its leadership of the industry.

Transformation through Acquisitions

Teledata has been on an aggressive acquisition spree during the last Fiscal year and has acquired as many as 12 companies. In October 2005 the company acquired Picnic Marine, a thailand based company for US$ 27 Mllion.

In Jan., 2006 the company has taken over the majority stake in Hyper Sascom Ltd incorporated in the state of Bihar. Hyper Sascom Limited, Patna is having an agreement with District Computer Centre Society, Patna to provide Computer Education for all students studying in all Rajkiya, Rajkiyakrit, Minorities and other Govt. and Govt. aided high / middle schools of Patna Dist aggregating to 205 Schools. The Student Strength of the school is approx 1.80 lakhs .

In Feb 2006, te company had taken over 60% in SBC Data Systems Ltd, Ireland through its subsidiary. SBC Data Systems Ltd. provides solutions to the transportation and logistics industry. SBC Data Systems Ltd, Ireland is a company having a turnover of USD 7 Million with a profit margin of 30% . The per employee contribution to the company’s profitability is more than the average industry standards.

In March 2006, Teledata had acquired 100% stake in Alpha Soft Services Corporation, USA through its subsidiary. Alpha soft is a 28 Million US $ Company providing high quality IT services in the areas of Enterprise Resource Planning (ERP), Data Warehousing, E-Business and related technologies. Vendor specific technologies include Oracle, PeopleSoft, BEA, IBM, ATG, Informatica, Business Objects, Cognos and Microsoft. The tremendous growth of AlphaSoft has earned it a place on the prestigious Inc. 500, ranking #131 in its first year of eligibility. AlphaSoft also ranked #16 in the San Francisco Business Times’ Top 150 Fastest Growing Private Companies list.

In April,2006 the company acquired 80% in I-Max Networks Limited, London through its subsidiary. I-Max Networks Ltd is a provider of telecommunication carrier services, equipment distributor and an integrated solution provider. The company specializes in IP telephony - VoIP, TDM & Wireless communication. The core business is based on wholesale and retail of International voice traffic and aggregating traffic for Incumbent Local Operators. Their subsidiary Voicetec Systems Ltd caters to the wholesale business. This was a step towards strengthening its presence in the communication sector.

In January 2007, it acquired 100% stake in Soltius Pte Ltd, Singapore through its wholly owned subsidiary, Bitech International LLC, Dubai. Headquartered in Singapore, Soltius is a Global IT solutions & Services Company that offers expertise in areas of business solutions and services. With over 800 professionals on board worldwide Soltius focuses on SAP projects and consultancy services. The company’s industry-specific groups generate strategies rooted in a deep understanding of the practices and processes that help identify appropriate business solutions and services for various industries.

In January 2007, Teledata Informatics Ltd had invested USD105 million to acquire majority stake in Singapore headquartered IT distribution major and PC maker - eSys Technologies Pte Ltd. The investment will enable Teledata capitalize on the synergy between Teledata and eSys which would help accelerate the business levels with tremendous prospect.

So one can see that Teledata's business model has been of growth through acquisition. Investment Guru believes that integration of all these business with the business model of the company will be the major factor for Teledata's future growth. After making these smart acquisition the uphill task is to integrate them and make the best use of the synergies available.

Teledata -eSys to set up PC Manufacturing unit in Himachal Pradesh

eSys Technologies is setting up a PC manufacturing unit in Baddi, Himachal Pradesh to be operational in 2007. The installed capacity of the plant would be 1,200,000 units per annum and the total capital investment is expected be around Rs 250 crores.

Impressive growth in Topline and Bottomline

For the Fourth Quarter ending March 2007, the company has posted revenues of Rs. 1572.81 Cr. against Rs. 453.07 Cr. for the respective quarter last year recording a jump of 247%. Net Profit for the above period of Rs. 207.13 Cr. has witnessed a surge of 416% compared to the same quarter last year.

For the Year Ended March 2007, the company posted a Topline of Rs. 3802 Crores and a Net profit of 489 Crores. This shows a sproadic increase in both tipline and bottom line in the last leg of the year.

For the quarter ended March 07, the EPS stood at Rs. 10.53 while the Full Year EPS for 2006-07 stood at Rs. 27.25 If we evaulate the company current stock price on its EPS, Teledata is currently qouting at roughly 3 P/E.

The PE levels makes a case of value buying but this is not new phenomenon for the company. The company's stock has been a laggard for a long time and this is nothing new. What is new is the developments on the acquisition front which have provided the much needed visibility to the company and push to its topline. No doubt the stock is qouting at very attractive levels given the growth trajectory....so what is holding up the stock to attin PE levels comparable to other Good IT stocks ?

Shareholding Pattern- Cause of Concern

Yes, this is the main bone of contention for a shareholder of the company. A general question which arises is that if the company is on a fast growth track and the management sounds so cpnfident of the future growth prospects of the company, why are the promoters holding such a small pie in the company ? Yes, we can see that there is some shift from Mar-06 when the promoter holding was just 4.49 % and now the promoter holding stands at 16.09 %. This is still a low promoter holding for such a fast growing company and raises doubts over the promoters intention. A obvious question that arises is " Are the promoter jacking up the prices through manipulation for their vested interest?" I would not comment on this as I do not have clarity on what is going in promoter's mind. But for sure this is one of my biggest concern for the stock.

Stock Price Movement and Volumes

Though the company started its acquisition spree long back sine October 2005 and most of the acquisitions happened in Year 2006 , the stock price picked up in real terms only after acquisition of Soltius and beame more pronounced with acquisition of Esys. The stock price didn't looked back since then and the stock has undergone series of Upper circuits. The current circuit limit for the stock is 5% and the stock continues to hit the same. Another interesting thing to note is that the stock price rise has come with huge volumes which suggests that there has been a wide circulation of the stock among public holdings as well as active trading is taking place in the stock.


Teledata - Buy , Hold or Sell ?

Well, that's a tough call given the mixed outlook on the company fundamentals. Though the growth delivered by the company specially in the later half of Year 2006-07 is outstanding and augers well for the stock price, the promoter holding which is still at lower levels has left the investors worried about their intentions.

The story which could be percieved as a transformation or turnaround has got grey spots with uncertaintly over promoter's intentions. I beleive the promoter should come up on some forum to reveal their strategy and reasons behind a lower stake in the company.

Investment guru is of the view that the stock at current levels has still the steam left but it offer a High risk , High return proposition. The short term target for the stock is Rs 100 ( 10 days timeframe) and Investors who are invested should keep a close watch on the volumes. Any reversal in the uptrend should be used as a caution and more than 10% fall should be ideal for taking a stoploss position. For long term perspective we would need to watch how the company delivers going forward and how well does the mangement demonstrates its confidence in the business model of the company. Definitely a dark horse for Long term Investors !