Cam­bridge Tech­nol­ogy En­ter­prises Ltd: Bright prospects!

(BSE Code: 532801) (CMP: Rs.51.95) (FV: Rs.10)

Money Times - - Expert Eye - By Vi­hari

In­cor­po­rated in 1999 and pro­moted by Aashish Kalra (Chair­man & CEO), Cam­bridge Tech­nol­ogy En­ter­prises Ltd (CTEL) is a global busi­ness and tech­nol­ogy ser­vices provider that pro­vides busi­ness value through a com­bi­na­tion of process ex­cel­lence and in­no­va­tive ser­vice de­liv­ery mod­els. It lever­ages world-class tal­ent, rel­e­vant tech­nol­ogy, patented and proven tools and method­olo­gies and global de­vel­op­ment cen­tres to pro­vide in­no­va­tive and com­pet­i­tive so­lu­tions. It has of­fices in mul­ti­ple lo­ca­tions in North Amer­ica and off­shore de­vel­op­ment of­fices at Hy­der­abad and Ban­ga­lore in In­dia. It has an em­ployee base of around 350. It helps or­gan­i­sa­tions cap­ture new en­ter­prise value by lev­er­ag­ing the con­ver­gence of big data and the cloud and un­leash­ing the po­ten­tial of Ar­ti­fi­cial In­tel­li­gence (AI) and Ma­chine Learn­ing (ML). It of­fers an end-to-end ap­proach in de­sign­ing and im­ple­ment­ing en­ter­prise IT strate­gies lev­er­ag­ing the cloud wher­ever it is pos­si­ble and nec­es­sary. As at FY18, it has 4 wholly-owned sub­sidiaries: Cam­bridge Tech­nol­ogy Inc (USA); Cam­bridge In­no­va­tions Cap­i­tal LLC (USA); Cam­bridge Tech­nol­ogy In­vest­ments Pte. Ltd (Sin­ga­pore); and Cam­bridge Bizserve Pvt Ltd (In­dia).

CTEL op­er­ates un­der the fol­low­ing busi­ness ver­ti­cals: En­ergy and Util­i­ties; Life Sciences/Pharmaceuticals; In­dus­trial; Bank­ing, Fi­nance & In­sur­ance (BFI); Data In­fra­struc­ture; Rapid Pro­to­typ­ing via Cam­bridge In­no­va­tions (CI); and Man­aged Ser­vices via Cam­bridge Bizserve (CB). The CB ver­ti­cal fo­cuses on ef­fec­tively manag­ing busi­ness pro­cesses and pro­vides busi­ness in­sights through an­a­lyt­ics to clients. It pro­vides data sup­port and man­aged ser­vices for the

ap­pli­ca­tions it builds. CI is a fast-grow­ing ver­ti­cal and rev­enue gen­er­a­tor. It at­tracts and up­skills tal­ent while pro­vid­ing fi­nan­cial up­side through eq­uity par­tic­i­pa­tion to the com­pa­nies it helps. CTEL has strength­ened its part­ner ecosys­tem by achiev­ing the ‘Plat­inum Part­ner’ sta­tus with Or­a­cle, Premier Part­ner with Ama­zon Web Ser­vices while build­ing part­ner­ships with Pen­taho, Apica Sys­tems, ForgeRock, Rackspace, Tableau and New Relic. Through its part­ner net­work, it gains ac­cess to the best tech­nol­ogy frame­work and so­lu­tions, strength­en­ing its de­liv­ery ca­pa­bil­i­ties.

For FY18, CTEL re­ported 24% lower PAT of Rs.12.9 crore on 1.5% lower in­come of Rs.99 crore and an EPS of Rs.6.6. Dur­ing Q2FY18, it re­ported 89% higher PAT of Rs.6.2 crore on 2% higher in­come of Rs.24.3 crore and an EPS of Rs.3.2. Dur­ing H1FY19, it re­ported 56% higher PAT of Rs.8.9 crore on 4% higher sales of Rs.48.1 crore and an EPS of Rs.4.6. With an eq­uity cap­i­tal of Rs.19.6 crore and re­serves of Rs.37.4 crore, CTEL’s share book value works out to Rs.29. Its debts are Rs.12 crore. Cash, in­vest­ments, loans and ad­vances and other cur­rent as­sets amount to Rs.59 crore, which gives the com­pany a debt-free sta­tus. The value of its gross block is Rs.13 crore. The pro­mot­ers hold 46.9% of the eq­uity cap­i­tal, which leaves 53.1% stake with the in­vest­ing pub­lic.

In line with pro­vid­ing global clients ac­cess to 24/7 de­vel­op­ment cy­cle, CTEL re­in­forced its US pres­ence with 6 of­fices and ex­pand­ing its off­shore de­liv­ery cen­tres in In­dia across Hy­der­abad, Ban­ga­lore and Chen­nai. Fur­ther, re­al­iz­ing the sig­nif­i­cance of trained and skilled em­ploy­ees, it has in­vested heav­ily into train­ing em­ploy­ees via its com­pe­tency cen­tres in In­dia and USA.

CTEL is fo­cused on build­ing its SaaS based long-term rev­enue model as more than 60% of its con­sol­i­dated rev­enue comes from con­tracts that are long-term in na­ture (ten­ure of over 3 years). The man­age­ment fo­cuses on value and not the num­ber of con­tracts. It aims to have at least 75% of its ser­vice con­tracts as long-term in na­ture. Un­der this pre­dictable model, it ex­pects to de­liver over $50 mil­lion in ser­vice rev­enues over the next 5 years from its ex­ist­ing clients. Fur­ther, the man­age­ment is fo­cused on build­ing re­us­able and scal­able blocks of tech­nol­ogy and re­serves the rights to some of the tech­nol­ogy in ma­jor­ity of its con­tracts.

Cloud and Big Data, fu­elled by AI and ML will de­fine new and re­de­fine ex­ist­ing in­dus­tries thereby trans­form­ing data into a valu­able knowl­edge as­set and a cat­a­lyst for dis­rup­tion. Ac­cord­ing to a re­port from A.T. Kear­ney, the over­all big data spend could grow at 30% CAGR through 2018 and each IT job cre­ated in the process of up­grad­ing will cre­ate 3 ad­di­tional jobs out­side IT.

In­dia’s IT and ITeS in­dus­try grew to $167 bil­lion in FY18. The mar­ket for IoT (In­ter­net of Things) is grow­ing rapidly. GE’s ‘In­dus­trial In­ter­net In­sights’ re­port pre­dicts that the IoT will add $10-15 tril­lion to global GDP over the next 20 years.

With the base built in the last 2 years, CTEL is in­spired to achieve ‘Vi­sion 2020’ and be a part of this trans­for­ma­tion, for which it will fo­cus on or­ganic growth. Over the next 3 years, it ex­pects an­nual rev­enue of ~$10 mil­lion on an av­er­age from each of its 4 growth driv­ers i.e. Cam­bridge Big­data, CB, Cam­bridge DataS­cience and CI. CTEL is as­sessed at Ma­tu­rity Level 5 for CMMI v1.3 with ISO 27001:2013 cer­ti­fi­ca­tion. Its ex­per­tise across mul­ti­ple do­mains makes it the pre­ferred choice for or­ga­ni­za­tions seek­ing an AI Part­ner to in­no­vate and stay ahead in the mar­ket. Based on its growth ini­tia­tives and bright in­dus­try prospects, CTEL is likely to notch an EPS of Rs.12 in FY19. At the CMP of Rs.51.95, the stock trades at a for­ward P/E of 4.3x on FY19E earn­ings. A rea­son­able P/E of 8.5x will take its share price to Rs.102 in the medium-to-long term. The stock’s 52-week high/low is Rs.102.9/40.8.

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