Lanco Global Systems Limited
BSE Code: 532368
Lanco Global Systems Ltd. (LGS) is a global IT services provider focused on delivering customized business solutions with expertise in Consulting, Application Management & Support (AMS), testing and business process outsourcing (BPO).
Business:
Incorporated in 1999, Hyderabad based LGS is SEI CMMI appraised company with offices in US, UK and India. LGS along with its two subsidiaries in US - Techorbit Inc. and Global It Inc., has highly competent workforce of over 1250 professionals working on various skill sets.
LGS offers IT services and solutions to diverse enterprise companies operating in healthcare, manufacturing, energy, retail, financial services, life sciences, and chemical industries as well as to government agencies through its onsite consulting expertise and offshore development experience.
LGS’s consulting services include implementation, application development, upgradation and migration of ERP solutions. Its managed services include application management services and infrastructure support. LGS also provides a range of on-shore and offshore testing and QA services, such as test program management, automation and regression testing, performance benchmarking, and Web testing. The company also offers diversified BPO services in the areas of administration, finance and accounting, human resources, payment services, supply chain management, and sales, marketing, and customer care.
LGS’s solution portfolio includes IT governance, compliance & security services, ERP solutions and services, Customer Relationship management solutions, Business Intelligence & Data warehousing, Enterprise Application Integration (EAI) and Enterprise Knowledge portal solutions.
LGS has strategic alliances & partnerships with firms like Oracle, Cognos, SAP, Clear Blue, Sitara, Virsa Systems and others helping them to offer end-to-end multi-function, enterprise-wide solutions globally. LGS derives almost all its revenues from exports with clients across diverse sectors like GE Energy, Comsys, IBM, BASF, Genpact, Johnson & Johnson, Prudential Financial, Roche, Revlon, Ryan Beck & Co., Aban etc. Based on the segments, Consulting contributes the maximum to sales revenues (28%) followed by Healthcare (18%), ITES - telecom (16%), manufacturing (13%), chemical & pharma (9%), BFSI (8%) and government (4%).
The impact of recent banking & financial segment failures in US on LGS’s revenues would be lesser as they have a minimal market in this sector as of now.
In continuance to its strategy of identifying high value segments of the business, LGS is further enhancing and strengthening its service portfolio through investment and marketing of Intellect Product range and service oriented architecture (SOA) based services.
“We plan to launch new software products in enterprise resource planning, SOA and a business to business tool for E-commerce. We want to offer a B2B tool in a software-as-a-service (or pay per use) model and are also working on developing a hospital and clinical data management application. These are a part of the solution factory, which is an incubator for innovative solutions in upcoming technologies” said company sources.
Going forward, focus would be more on the Healthcare, E-commerce, infrastructure support, Data Center, Cosmetics and Manufacturing (Sugars and Alloys) sectors. LGS is also just about to close a deal on a huge project in the Healthcare sector.
Expansion plans: LGS plans to selectively expand its global presence to enhance its ability to service clients. LGS plans to accomplish this by establishing new sales and marketing offices in Europe, Middle East Asia and South African region. LGS expects this market to account for 10-12% of revenues by next year, on the back of its enterprise application, business intelligence (BI) and SOA service offerings. LGS’s project and support teams are all well geared up to meet the new challenges of the Industry.
Investment rationale:.
LGS has become integrated IT solutions provider with high end and niche offerings in consulting, business intelligence, EAI & managed services space. Being into IT application management and infrastructure support which is highly critical for any business organization, LGS revenues would not be affected by slowdown in any particular segment. LGS seeks to strengthen its position as a leading global technology services company by successfully differentiating its service offerings and increasing the scale of operations. LGS has aggressive organic and inorganic growth plans which will help to increase its offshore segment activities leading to increased business. Tapping newer markets in Middle East & South African region apart from US would further strengthen its capabilities and would be a very important step to drive future growth.
Concerns:
LGS derives its major revenues from the US, due to which it remains exposed to economic slow down in the US economy. LGS which derives a considerable part of its revenue from exports faces currency exchange risk also.
Valuations:
LGS with its diversified offerings in IT consultancy, AMS and BPO domains to various verticals, is expected to continue its growth momentum going forward backed by inorganic expansion route. LGS’s revenues are expected to grow at CAGR of 57% over FY08-FY10E and net profit at CAGR of 56% between FY08-FY10E. At CMP of Rs 60, it trades at a P/E of just 4.45x its FY08 earnings and at 2.75x & just 1.81x its FY09E & FY10E earnings respectively. At current levels, investors can keep an eye on LGS from long term perspective.
| SALES AND PROFIT PROJECTIONS | ||||
| | | Consolidated Annual | | |
| in Rs. Crore | Q1 FY09 | FY08 | FY09(E) | FY10(E) |
| Net sales | 85.30 | 277.43 | 457.76 | 686.64 |
| OP | 12.40 | 40.35 | 65.23 | 99.56 |
| PAT | 13.22 | 34.31 | 55.39 | 84.11 |
| Capital | 25.42 | 25.42 | 25.42 | 25.42 |
| EPS (Rs.) | 5.20 | 13.49 | 21.79 | 33.09 |
| PRICE AND VALUE RATIOS | |||
| Price | 59.95 | Date | 03/10/2008 |
| PE | 4.45 | PB | 2.26 |
| Book value per share | 26.54 | EV | 180.64 |
| EV/EBIDTA | 4.46 | Mcap | 152.54 |
| SHAREHOLDING PATTERN | |
| Share holding | Jun 2008 |
| Promoter owned | 67.03 |
| Public owned | 14.24 |
| FIIs owned | 0 |
| Others owned | 18.73 |
1 comment:
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