Cambridge Technology Enterprises Ltd: Bright prospects!
(BSE Code: 532801) (CMP: Rs.51.95) (FV: Rs.10)
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.