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Saturday, May 7, 2011

Sark Systems India Ltd:Buy/sell/hold,growth prospects and recomendation,news and results,target price and analysis,views and outlook

Scripscan:Sark Systems India Ltd
code:533056
cmp:11

Rationale for Recommendation:SSIL is involved in software development for e-Governance Application which has huge potential. In last 2 years, SSIL could not avail of opportunitites available in this segment due to working capital crunch. However, last week only, SSIL has bagged at large order from National Population Register (NPR) . SSIL has tied up with another company for executing this order and hence, SSIL is likely to report excellent nos in current year. Company is hopeful to get some of its old outstanding payments which will help to tide of working capital crisis. Company has also entered into One-time-settlement with IL&FS Financial and has already made some payment to IL&FS for same.

PROFILE: Hyderabad based SSIL has evolved as a niche player in e-Governance Applications, Portal development services, IT enabled Citizen Centric Application developments, Its business can be divided into four major verticals:

1.E-GOVERNANCE SOLUTIONS: SSIL has build solutions for local body management which covers Panchayats, Municipal corporations and Nagar Palikas. Company had bagged its first project from Municipal Corporation of Delhi in 2003 Since then, SSIL set up over 2000 citizen services centres (CSC) in Delhi, Haryana and Bihar. These centres have been set up under Govt of India mandate to provide various G2C,B2C and B2B services. It has has launched various citizen service under brand ABHEE

SSIL has been pineer in e-ticketing/pass solutions for state road transport undertakings. It had bagged its first project in e-Governance solutions with ECIL in 2001 to execute a five year contract for computerized bus pass services for DTC and went on to bag similar contracts from many other state road transport undertakings in TamilNadu, Karnataka and Mahrarashtra. SSIL has developed online reservation portal for DTC and Transport Development Corporation

SSIL has also designed the directorate of employment exchange portal for Ministry of Labour and Employment, Govt of Delhi and has managed thier protal and service delivery centres for five years.

2. KNOWLEDGE CENTRE SOLUTIONS: SSIL has executed IT INfrastructure management services contract for MCD teachers training for over five years.

3. CITIZEN SERVICES DELIVERY PLATFORM MANAGEMENT: SSIL has setup citizen service bureaus to render municipal e-governance services through these centres and now the scope of services in these centres is being expanded to add Rail reservations, Insurance Premium collection services, top-up services, utility bill collection etc. Model is being grown out under the brand name ABHEE to run them as franchise centres in non-government premises also to enable citizen services at door step of the consumer. SSIL received mandate under National E-Governance program to set up 700 centres in Haryana and 1497 centres in Bihar. These centres are being promoted as rural deilvery platform for G2C, B2C and B2B servics enablement in rural India.

4. NEW SE5RVICES E-INTEGRATION: SSIL plans to replicate its solution in other states to leverage its experience in G2C services delivery, promixity to the assured customer base.

FINANCIAL PERFORMANCE:Performance of SSIL in last 2 years has been lacklustre as company had been facing working capital crunch due to long outstanding/overdue with State Govt although these payments are safe.

FUTURE TRIGGERS:Despite lacklustre performance of last 2 years, SSIL is poised for big growth in current year and future due to various factors:

1)SSIL has started receiving payments from Bihar Govt which have been overdue since long and which was causing financial crunch on the company.These payments will help SSIL to implement/expand its operations.

2)SSIL has also arrived at One-Time-Settlement with IL&FS which should fetch approx 1.50 crores write-back. In this regard, SSIL has already made some payment to IL&FS and OTS should be completed in next 3-4 months.

3)SSIL has received a large order from National Population Register. Under same, company has been entrusted for Data Collection of more than 3.50 crore citizens in 10 districts in Andhra Pradesh. This project has to been completed in 12-15 months and total revenues from this project should be in range of Rs 65-70 crores.

4)As company expects better working capital conditions in coming months, company will be pursuing aggressively to bag new large orders. As per our sources, SSIL should some more orders worth 50 crores in coming months.

FUTURE OUTLOOK:

2011-12E 2012-13E

Total Income 48.00 60.00

Net Profit 4.50 6.60

Equity 9.35 9.35

EPS Rs 4.80 7.00

Current market cap of SSIL is just Rs 10 crores. Last year, its share price had touched Rs 44 and at current levels scrip appears almost riskfree. Scrip is :

1.Trading at 2.30xFY12E Eps
2.Available at 1.56xFY13E Eps

Above valuations are quite low. If SSIL succeeds in successful implementation of NPR contract, it will pave way for much bigger e-governance projects in future years as scope/potential in e-governance is really huge.Altogether a scrip to watch out for.

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