STOCK IDEAS- Quintegra Solutions Limited

Quintegra Solutions Limited

BSE Code: 532866

NSE Code: Quintegra

Quintegra Solutions Ltd (QSL), a global IT services and Consulting Products company, is one of India's leading software developers and IT services exporter. Leveraging its proven global delivery model, Quintegra provides a full range of custom software development solutions and consultancy services in IT on various platforms and technologies.

Business:

Established in 1994, Chennai based QSL is SEI CMM assessed company with offices in US, UK, India, Malaysia, Singapore, Germany & Africa and offshore development centers in India, Singapore and Malaysia. QSL has highly competent workforce of over 1000 professionals worldwide working on different skill sets.

The company’s broad capabilities include application management, product engineering, enterprise solutions, testing and validation, business process consulting, systems integration and staffing services, and proprietary product suites. QSL offers services for banking and financial services (BFSI) segment, healthcare, education and training, engineering and telecom domains.

BFSI : This segment contributes to around 65% of the revenues wherein QSL leverages on its comprehensive understanding of the industry’s business and technology drivers to deliver customized and innovative solutions to BFSI sector. QSL’s key niche offerings cover the areas of Asset & Wealth Management, Commercial & Investment Banking, Exchanges, Brokerages, Mortgage & Insurance.

Education: QSL derives around 5% revenues from this segment where it offers suite of products and solutions. These products are fully web-based, automated and integrated systems for managing the entire academic processes like enrolment, admissions, student monitoring etc. and workflow automation applications for schools, institutes of higher learning, training academies and training division of corporates.

Healthcare: This segment contributes to around 10% of revenues wherein QSL offers products and solutions for patient data monitoring, hospital management & information systems, medication use processes, clinical data monitoring & administration.

ERP: This vertical contributes around 10% to the revenues. QSL provides SAP support, implementation, upgradation, functional and production support to various domains including engineering, discrete manufacturing, construction, retail, healthcare, logistics etc.

KPO plans: QSL has invested around 30 crores to set up new facilty at Chennai which has seating capacity for 800 people. QSL plans to set up KPO in order to cater to its overseas clients in telecom, healthcare and BFSI domain. This KPO is expected to be operational by Q2’08 and would contribute to additional revenues.

QSL has shown tremendous growth with revenues growing from Rs. 77 crores in FY07 to Rs. 388 crores in FY08 on the back of aggressive growth strategy employed by spending over Rs. 240 crores in last two years on the acquisition of IT firms – ValleyUS & PA Corpoation in US and Jadelite Technologies in Singapore. The company has been able to capatilise on its acquisitions and converting the accounts into business projects by increasing the offerings. “We are looking at organic growth of 50% Y-O-Y and targeting 1 Billion USD in revenues in next 4-5 years” said Mr. Shankarraman Vaidyanathan, Chairman & MD of QSL.

The company has restructured itself into profit based business units which will allow a greater control over the profitability, faster decision making and better leadership and control of each business vertical to obtain the rapid growth envisaged. QSL has also invested in creating products in its chosen verticals utilizing its domain knowledge which allows it to provide value added services to its customers and in turn greater business revenue. QSL is also focusing on high volume market by offering these products in SaaS (software as a service) model, creating an additional revenue source.

QSL has over 1000 global clients across diverse sectors including some of the best-known corporations like Wal-mart, Citibank, Ebay, Amdocs, Cap Gemini, McGraw Hill etc. Currently 90% of the revenues come from US, 3% from domestic Indian market and rest from Asia & Africa.

In order to reduce its dependence on US market, QSL is looking to increase its reach and increase its client base in European countries through inorganic route by acquisition of some strategically fit companies having similar culture and growth plans.

Investment rationale:.

QSL’s strategy has been to balance the company’s mix of business between its core custom IT solutions and higher-value, higher-margin services such as IT consulting, professional staffing, and outplacement services. QSL’s aggressive organic and inorganic growth plans, fuelled by a new & powerful management structure, provides substantial potential for growth of investments.

QSL is also focusing on providing products rather than projects leading to higher margins and returns. Its diversified offerings across sectors and markets make it a good medium to long term bet.

Concerns:

The IT market has traditionally been highly fragmented, with severe competition globally, but QSL has differentiated itself by providing value added solutions in form of products in verticals where it has strong domain knowledge. QSL which derives a large part of its revenue from exports faces currency exchange risk. Also QSL has invested substantially in acquisitions where the returns could be expected over some period of time.

Valuations:

QSL with its unique business model offering IT product, services and solutions to strong growth sectors like education, healthcare and financial services is expected to continue its growth momentum going forward. QSL’s revenues are expected to grow organically at CAGR of 45% over FY08-FY10E and net profit at CAGR of 64% between FY08-10E. At CMP of Rs 83.6 it trades at a P/E of just 6.38 its FY08 earnings and at 3.78x & just 2.38x its FY09E & FY10E earnings respectively. Considering the strong revenue growth and good margins, QSL looks attractive at current levels.

SALES AND PROFIT PROJECTIONS
	Q4	Annual	Annual	Annual
in Rs. Crore	FY08	FY08	FY09(E)	FY10(E)
Net sales	104.33	388.22	565.00	820.00
OP	12.79	50.38	79.10	123.00
PAT	5.52	35.15	59.33	94.30
EPS (Rs.)	2.06	13.11	22.13	35.17
Capital	26.81	26.81	26.81	26.81

PRICE AND VALUE RATIOS
Price (Rs.)	83.60	Date	30/05/2008
PE	6.38	PB	2.06
Book value per share	40.55	EV	288.00
EV/EBIDTA	5.71	Mcap	224.10

SHAREHOLDING PATTERN
Share holding	Mar 2008
Promoter owned	28.88
Public owned	17.96
FIIs owned	8.46
Others owned	44.7