Buy Sasken Communications Tech. Ltd
Target Price Rs. 272
CM Price Rs195.30
Snapshot
Sasken Communication Technology Ltd (Sasken) is an embedded communications solutions company that helps businesses across the communications value chain to accelerate product development life cycles through a unique combination of research and development consultancy, wireless software products and software services. Sasken employs more than 3,200 people operating from state-ofthe- art research and development centers in India, Finland, Mexico and the US. Over the years Sasken has grown organically as well as inorganically by acquiring stakes in several small companies.
Key Positives
- Strong growth in Handset segment with the increasing subscriber base in the emerging markets and the growing popularity of smart phone devices is expected to boost the demand for outsourcing of R&D activities which will positively impact the company’s future growth prospect.
- Constant focus for acquisition has enabled Sasken to register strong growth over last few years. The recent acquisition of Ingenient Technologies Inc (Ingenient) will not only provide fuel to the company’s top-line growth but will also provide it an entry into consumer electronics sector.
- EBITDA margin is expected to improve in future with the cost control measures through managing employee strength and reduction in SG&A expenses.
- Effecting hedging strategies to partially mitigate the impact of INR appreciation against US dollar in near term thereby ensuring steady revenue top-line.
Valuation & Recommendation
At the current market price of Rs 196 per share, Sasken is currently trading at a PE of 9.24x at FY 2010 estimated EPS and 8.94x at FY 2011 estimated EPS, which looks quite attractive. Based on our EPS estimate of Rs. 27.17 for FY 2011 and a target PE multiple of 10.00x we arrive at a target price of Rs. 272 per share for Sasken indicating a upside of 39% from the current levels. We recommend a BUY rating on the stock with a long term view.
Report card
| Attribute | Value | Date |
|---|---|---|
| PE ratio | 21.19 | 14/01/10 |
| EPS (Rs) | 9.50 | Mar, 09 |
| Sales (Rs crore) | 97.08 | Sep, 09 |
| Face Value (Rs) | 10 | |
| Net profit margin (%) | 5.33 | Mar, 09 |
| Last dividend (%) | 20 | 30/10/09 |
| Return on average equity | 6.08 | Mar, 09 |
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Nirmal Bang Securities Pvt. Ltd. Company has given a fresh call to Buy Sasken Communications Tech. Ltd. with a target of Rs.272
They expect the company’s PE multiple to increase given the anticipated growth rate and the multiple garnered by the other industry players. There target PE multiple of 10.0x is at a significant discount to peer group multiple considering the scope of business of the company as compared to its peers.
Based on the target PE of 10.0x and there estimated FY 2011 EPS of Rs 27.17 they get a target price of Rs. 272 for Sasken which represents a 38.6% upside from the current levels. We recommend a BUY rating on the stock with a long term view.