CRISIL Research has come out with its report on Helios and Matheson Information Technology. The research firm has maintained the valuation grade of 5/5 and fundamental grade of 3/5 to the company.
Helios and Matheson Information Technology's (Helios') Q2FY14 results (financial year-ending September) were in line with CRISIL Research's expectations. Consolidated revenues grew 1.8% q-o-q to Rs 2,035 mn driven by volume growth. In dollar terms, revenues grew 2.2% q-o-q to US$33.1 mn. EBITDA margin was largely flat q-o-q at 22.5%. PAT grew 2.9% q-o-q to Rs 164 mn. The company expects a healthy deal pipeline over the next two years. Accordingly, we maintain Helios' two-year revenue CAGR estimate (in dollar terms) of 16% to US$155 mn in FY15. We expect the currency to remain firm compared to our earlier estimates. Hence, we lower our earnings estimates. We maintain the fundamental grade of 3/5.
SMAC offerings at the initial stage
Helios continued test runs in new generation offerings – social media, analytics, cloud computing and mobility (SMAC). It conducted test runs for learning education cloud for one of its clients this quarter and now plans to offer this service to other clients too. In Q2FY14, it invested ~Rs 15 mn on SMAC offerings and monetised some gains. However, these offerings are at a nascent stage and will take time to make a meaningful contribution to the company's revenues.
Earnings and fair value lowered
Following downward revision in earnings estimates, we lower our discounted cash flow (DCF)-based outstanding fair value estimate for Helios to Rs 114 per share from Rs 125. The fair value implies P/E multiples of 4.9x FY14E and 4.2x FY15E EPS respectively. At the current market price of Rs 82, the valuation grade is 5/5.
Disclaimer: This report (Report) has been commissioned by the Company/Investor/Exchange and prepared by CRISIL. The report is based on data publicly available or from sources considered reliable by CRISIL (Data). However, CRISIL does not guarantee the accuracy, adequacy or completeness of the Data / Report and is not responsible for any errors or omissions or for the results obtained from the use of Data / Report. Opinions expressed herein are CRISIL's opinions as on the date of this Report. The Data / Report are subject to change without any prior notice. Nothing in this Report constitutes investment, legal, accounting or tax advice or any solicitation, whatsoever. The Report is not a recommendation to buy / sell or hold any securities of the Company. CRISIL especially states that it has no financial liability, whatsoever, to the subscribers / users of this Report. This Report is for the personal information of the authorized recipient only. This Report should not be reproduced or redistributed or communicated directly or indirectly in any form to any other person or published or copied in whole or in part especially outside India, for any purpose.
CRISIL Limited. All Rights Reserved. Published under permission from CRISIL"
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