Equity Watch

Datamatics Technologies- a Dark Horse who may win the 2008 race

Datamatics Technologies Ltd.(DTL ) ,a pioneer in providing BPO and KPO solutions was incorporated in 1975 by Dr. Lalit Kanodia who is widely known as the founder of Indian IT Industry. Even before Dr. Kanodia got his Ph.D. from MIT he was selected as a member of the team that developed and designed the first two multi-user operating systems (CTSS & MULTICS), which were precursors to UNIX. His pioneering streak continued and, in 1967, Dr. Kanodia founded and headed Tata Consultancy Services TCS. History was created again when  he founded Datamatics in 1975.Today  Datamatics is ranked by NASSCOM as the 12th largest BPO company. With several innovations to its credit, Datamatics had the distinction of establishing the first satellite link from India to the USA (AT&T Bell Labs) in 1989 and boasts having initiated the “off-shore software factory” concept. The company has executed over 1100 projects in 58 countries for some of the world’s largest organizations, including five of the top ten Fortune 500 companies. Today, its employee strength is over 1600, spread across the continents. Datamatics Technologies operates in the following domains:

1) Document Processing 2) Finance and Accounting 3) Content Management and 4) Consulting Practice.

Datamatics Technologies Limited made an initial public offer in April 2004. The issue was subscribed 27 times, and the shares listed on BSE and NSE on May 7, 2004, at a premium of 77% i.e. at Rs. 195 as compared to the issue price of Rs. 110.But today the share is available at 50 % of its IPO price.

Company’s Financials are given below:

Scrip Code : 532528    Company Name : Datamatics Technologies Ltd

Type Audited Audited Audited
Date Begin 01 Apr 05 01 Apr 04 01 Apr 03
Date End 31 Mar 06 31 Mar 05 31 Mar 04
Description Value(Rs. million)
Net Sales 616.28 609.74 554.96
Other Income 122.8 55.89 38.73
Total Income 739.08 665.63 593.69
Expenditure -411.7 -330.72 -286.16
Operating Profit 327.38 334.91 307.53
Interest -1.05 -6.45
Gross Profit 327.38 333.86 301.08
Depreciation -31.3 -25.32 -23.65
Profit before Tax 296.08 308.54 277.43
Tax -8.54 -4.96 -7.11
Profit after Tax 287.54 303.58 270.32
Net Profit 287.54 303.58 270.32
Equity Capital 203.08 203 160.37
Reserves 2039.62 1866.22 843.67
Forex earnings/Exports 548.58
EPS 7.08 7.6 8.66
Nos. of Shares – Non Promoters 12637487 12605737 4164977
Percent of Shares – Non Promoters 31.11 31.05 12.99
Result Type A A A
  Notes Notes Notes
Type UnAudited UnAudited Audited UnAudited UnAudited Audited
Period Ending 30 Sep 07 30 Jun 07 31 Mar 07 31 Dec 06 30 Sep 06 31 Mar 07
No Of Months 3 3 3 3 3 12
Description Value(Rs. million)
Net Sales / Interest Earned / Operating Income 134.03 127.11 177.77 161.74 178.49 684.23
Other Income 21.61 21.56 16.48 12.20 15.45 59.34
Total Income 155.64 148.67 194.25 173.94 193.94 743.57
Expenditure -119.99 -119.09 -121.78 -115.04 -124.42 -485.88
Operating Profit 35.65 29.58 72.47 58.90 69.52 257.69
Profit Before Depreciation and Tax 35.65 29.58 72.47 58.90 69.52 257.69
Depreciation -10.88 -10.68 -10.13 -9.73 -10.05 -39.83
Profit before Tax 24.77 18.90 62.34 49.17 59.47 217.86
Tax -4.35 -3.02 -5.00 -1.80 -1.77 -10.35
Net Profit 20.42 15.88 57.34 47.37 57.70 207.51
Equity Capital 203.58 203.58 203.58 203.58 203.58 203.58
Reserves 2,223.50 2,203.07 2,187.20 2,198.06 2,150.69 2,187.20
Basic And Diluted EPS after Extraordinary item 0.39 1.41 1.16 1.42 5.10
Basic EPS after Extraordinary items 0.50
Diluted EPS after Extraordinary items 0.50
Nos. of Shares – Public 12,748,381.00 12,743,131.00 12,743,131.00 12,743,131.00 12,743,131.00 12,743,131.00
Percent of Shares-Public 31.31 31.03 31.30 31.30 31.30 31.30
Operating Profit Margin 26.60 23.27 40.77 36.42 38.95 37.66
Net Profit Margin 15.24 12.49 32.26 29.29 32.33 30.33
Cash EPS 0.77
  Notes Notes Notes

 

Although the top line is showing a steady growth YOY, but the margins during the last 4 quarters have declined, probably because of  Rupee appreciation. However, considering that the company is DEBT FREE and is sitting on cash worth Rs. 55 per share ( same as its CMP ),share which is avalable at P/E of less than 10 can be bought with one year HOLD.We expect company’s financial performance to improve, as 2008 and future years are going to be years of Knowledge Management where DTL has competitive edge over its rivals.

Buy at CMP of Rs. 50 is recommended with atleast one year HOLD. 

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information

 

 

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8 thoughts on “Datamatics Technologies- a Dark Horse who may win the 2008 race

  1. Maulik Nagri says:

    Hello there! Thank you for bringing a great value company like Datamatics to our attention. Can you throw some light on declining top line and bottom line in the 2 quarters ended June 20, 2007 and September 30, 2007? Your research is very much appreciated. Thank you.

    Regards,

    Maulik

    Like

  2. Hi Maulik,
    There is talk of Re-organisation at Datamatics Technologies.Low Margin businesses are likely to be hived off or given out to franchisees .There is also some talk of merging Datamatics Ltd. with the Co. Company is trying to become thinner at the bottom of the pyramid.During 2008 after re-organisation you can hope to see better margins.

    Cheers
    Ashok

    Like

  3. Ravi says:

    Hi Ashok,

    I found your blog less than 2 weeks ago. I am really impressive with your recommendations. Even at this market 20k.Thanks for the wonderful job and I like your blog design also. It is very neat. I am just started investing less than 6 months. I know I have to go long way(learning…researching).I am in IT field working in Miami-Florida-USA.If you give me some good books reference or website to go through Technical analysis will be really helpful. I like to learn.

    From the bottom of my heart, I Wish you all a Healthy, Happy, Peaceful new year. 2007 was a great year. I wish us all a better 2008. Happy New Year!

    Ravi

    Like

  4. Tejas says:

    Hi Ashok,

    I think you have made one mistake. The cash value of the share is around Rs. 25 and not Rs. 55. The FV of the share capital is Rs. 5 and not Rs. 10.

    Like

  5. Hi Ravi,

    Some of the recommended books:
    Security Analysis: The Classic 1940 Edition by Benjamin Graham and David Dodd
    The Intelligent Investor: The Definitive Book on Value Investing. by Benjamin Graham, Jason Zweig, and Warren E. Buffett
    Financial Statement Analysis: by Martin Fridson and Fernando Alvarez
    One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch and John Rothchild
    Buffett: The Making of an American Capitalist by Roger Lowenstein
    Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The Worlds by Mary Buffett and David Clark
    The Market Gurus: Stock Investing Strategies by John P. Reese and Todd O. Glassman

    The above have also been recommended by equityresearch Thanks Equityresearch

    Cheers
    Ashok

    Like

  6. Hi Tejas,

    Reserves per share stand at Rs. 55 whereas cash per share in mutual funds and quoted investments stand at Rs. 35 per share.Howeveer when unquoted investments are taken at book value then cash per share comes to Rs. 45.Sorry for some goof up there. And thanks for correcting us.FV of share is Rs. 5 and no where we have mentioned this as Rs.10. Here both of us are RIGHT.

    Cheers
    Ashok

    Like

  7. Maulik Nagri says:

    This is nothing like the two big gorillas that sun capital has, they stick out like a sore thumb. I do not have the ability to communicate with you now. I was in vegas and yanked the shaft so many times my arm hurt.

    Like

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