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Research
AGC Networks Ltd. - Nirmal Bang
Posted On : 2012-05-21 11:07:49( TIMEZONE : IST )
- The sudden spike in Revenues & Profit in Q2FY12 was on account of acquisition of Aegis Tech Singapore Pte Ltd.
- AGC had one subsidiary earlier in Australia with revenues of ~ Rs. 10 crore per quarter.
- If we exclude Standalone result & Australian subsidiary result from the consolidated numbers then it appears that the
Singapore subsidiary is doing good and earning Rs.100 crore revenues per quarter with EBIDTA margins of ~ 20%. This entity is growing at a healthy CQGR of ~ 6%.
- In Indian business, Q4 is seasonal and has higher revenues.
- Considering similar kind of performance from the acquired entity in future, we can expect 17%-20% growth in revenues for AGC in FY13E and with marginal improvement in net profit margins, we can expect an EPS of ~ Rs. 58 for FY13E indicating the stock is available at 3.7x P/E for FY13E.
- Company also has declared dividend of Rs.15 per share for FY12 implying a 6.8% dividend yield at current price.
- AGC had invested Rs.80 crores in Aegis Ltd in FY11 which it has recently sold to AGC Holdings Ltd @ Rs.170 and this money can make the company debt-free.
- Debtor and creditor Days are on the higher end for the company however have declined in FY12.
AGC is now a part of Aegis Ltd which is a global business processing company having presence in 12 countries, 50 locations and an employee base of ~ 60000. It is also India's 4th largest BPO firm as per Nasscom. We believe AGC can now nurture and grow with its parent company's broad foothold in the Global markets. Moreover, company has now adopted a vertical focused approach along with client mining offering varied additional services which we believe should also extract higher margins for the company. Lastly, stable share of services revenues gives future visibility for revenues in the form of AMCs, installation and professional fees. Considering the lower valuation of ~ 3.7x for FY13E earnings and high dividend yield, one can consider to buy the stock for an 15-20% appreciation in the price in the near term.
