Update on previous pick: SPANCO | Blockbuster Results

Have a look at some numbers-

Sales up 78% at Rs. 186.84 cr
Net Profit up 82% at Rs. 9.28 cr
Operating Profit up 78% at Rs. 30.76 cr

Other good news:
1. Promoter Holding up by 6.56% (YoY) and 3.57% (QoQ) by preferential allotment @ 40 rs/share.
2. 4 Foreign Venture Capital Investors roped in for a total of 25% stake
3. SPANCO was lowest bidder for contract worth Rs. 7500 crore from BSNL in Q4FY09 valued at Rs. 3750 crores

It hits the upper circuits from Monday, in my opinion!!

Pick URL: http://stockscenter.blogspot.com/2009/05/spanco-ltd-sowing-productive-seeds.html

Pick Details/Analysis (old):

Spanco Telesystems and Solutions Limited is a leading software solution provider and integrator in the field of Telecom, Enterprise, Retail, Transport, Security and Public utilities. Spanco is poised with a technically strong and talented Instrumentation and Software Integration team, and has designed and developed many successful Value added solutions, for the same. With clients such as IRCTC, MTNL, Air India, Bharti Airtel, HUL, Mumbai Police – just to name a few, Spanco is on its own distinguished road towards better business avenues and the subsequent shareholder value creation.

Recently, Spanco bagged a Rs 7500 crore order from BSNL. The contract is towards building and maintenance of passive cellular infrastructure including towers, shelters, diesel generators, air-conditioning and associated services, the source added. It is expected that the order will fetch Rs. 1000 crores for the first year and with 12-13% EBIDTA margins, this looks positive. For a company with total revenues every year being around Rs. 500 crore, this is a major development. Subsequently, the share price of the company is expected to rise from the CMP of around 45 rupees to the levels of 100-115 in the short time frame of 3-4 months (provided all remains well around the world and Citi doesn’t sleep!). With a stable government now seen at the centre, the markets will not be negatively influenced in the shorter term at least. Coupled by (what I perceive to be a dead cat bounce) the global rally, the Indian markets are seen to outperform all other major markets. And in such a scenario, Spanco Telesystems is a great place for your investments. The only negative about this stock is the recent low of around Rs. 16 that it has tested. It means there can be some profit booking at higher levels, but that is unlikely because sensible investors would stay put in a company that has very high growth potentials.

There has also been recent news of Spanco BPO looking to acquire JV partner Spice Group’s stake in Bharat BPO. It has 8 centers and employs more than a 1000 employees. So, I am not talking about a small IT company. This one may not be known to many, but there’s more to it than meets the eye. The mere fact that it is an S group company in BSE should not be a deterrent to investment decisions.

One major sector Spanco is pioneering is mobile banking and mobile commerce. SBI launched its service in association with Spanco recently. There is tremendous scope here in this field as it is yet to take off (most mobile companies are constantly finding ways to commercialize applications, and Spanco can offer outsourcing opportunities for the latter part – for Spanco, there is a dual opportunity of providing end to end support). Apart from the conventionally known mobile services, Spanco is also into RFiD, GPS/GIS, E-governance(as is corroborated later in this analysis by the example of the ration card contract), ERP, and other such services. This is a budding venture in a budding industry.

Although Spanco is only a CMM level 3 company (most major IT companies are level 5 – eg, TCS). The SEI CMM provides a measure of the global effectiveness of a company’s software engineering practices. When Spanco develops gradually to a full fledged CMM level 5 company (here’s when my “end to end” reasoning culminates), it would have developed into a full grown mature company, and having thus generated wealth for its shareholders.

Another important project that Spanco has undertaken is the digitization of ration cards for Maharashtra. The company has invested around Rs 40 crores in this project. As is evident from this and the above discussions, Spanco has mainly its clients in the domestic market, and thus should not be very affected by the US anti outsourcing policies which may be passed by Obama (even the BPO business has potential domestic clients like Bharti Airtel).

Recently, Spanco decided to raise funds up to Rs 350 million by issuing 10 million equity shares of Rs 10 each at a price of Rs 35 a share which is inclusive of a share premium of Rs 25 share on preferential basis to promoters, foreign venture capital investors, foreign institutional investors. This lets one know about the real valuation of the company. The share is a hot pick at any price below Rs 35. But at the current level, it is not bad as well for long term and short term investors both. Yup, this is one scrip that has something in store for everyone!