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Saturday, September 19, 2009

Tera Software Ltd:-Future growth outlook and prospects(E-governance story)

1)Scripscan:Tera Software Ltd

Story:This is one of the most existing stories I have come across in a long time and the reasons are -- everybody says infrastructure. The first thing you think of is roads, bridges, power, etc nobody thinks of IT. I think IT is going to be integral to the infrastructure of this nation as well.Tera is interesting because when you say software you will inventively think of exports and you do not reckon that India is a big market by itself. Tera incidentally largely provides to the Indian market, one. Second, it’s in the area of e-governance, which is a subset of the country’s IT infrastructure. I think IT infrastructure is going to grow, e-governance will grow. So which are the companies that are going to benefit? I think Tera is an interesting proxy for some very interesting reasons such as higher margin business. Obviously, somebody is going to turnaround and say that the earnings may not be genuine and this promoter will be suspected. I do not buy lot of these arguments; rather I see that the company is paying a tax rate or a rate in excess of 30%. If the company is paying hefty tax then there is reasonable depreciation, if the interest cover is in excess of 10 then suddenly you got my antenna going up and that’s exactly all these positives attributes are all converging Tera as it got an interest cover in excess of 10. Suddenly I have got growth and margin so I got volume value play building up and when these two very different and very disparate and very extreme characteristics start converging you got interesting play coming up.So I would say Tera is really belonging to an area that we all overlooked because we have been partly seduced by the software export boom. This is not export; its domestic but its robust domestic because you got such huge order book position and these people are already working in nine states and the government is going gung-ho in the area of e-governance. If we were a remarkably well-managed nation, I won’t be very bullish about Tera; if there is room for corruption in the country, if there are long queues where you have to go and pay bills and people are afraid they do not have time to pay their bills I suddenly get very optimistic about Tera because that’s exactly the kind of business that it is in and the moment you find nobody in this country complaining about bureaucracy, red tape, corruption that’s when you can sell your Tera and get out and that’s not going to happen in longtime, which convinces me that Tera is made for sustainable growth.Altogether a good value buy at dips.

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