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Saturday, June 30, 2012

Geometric Ltd:Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Geometric Ltd

Story:A select set of mid-cap IT companies, especially those focussed on segments such as manufacturing and automotives, has managed to ride on the wave of increased outsourcing from clients in these verticals.Geometric is one such player that has benefitted from the revival in IT spends of clients after the freeze in 2008-09.Ramp up in top clients, steady stream of deals, and enhanced traction in key segments and geographies are positives for the company.Operationally, a fairly high utilisation level has meant that the company has been able to optimise costs.In terms of verticals, industrial and automotive are key areas where Geometric operates. For these segments, the company provides software services and engineering services.The relatively high margin (over 30 per cent EBIT) software services accounts for 55.4 percent of revenues, while engineering services accounts for 39.4 per cent, making it a healthy blended offering.From an industry perspective, manufacturing and automotives as segments have been growing at a healthy pace for top-tier players such as Infosys, HCL Technologies and TCS. This indicates a large potential market.Despite entrenched players competing, Geometric's robust growth in these segments suggests that it has also managed to sustain even though large outsourcing customers undertook vendor rationalisation exercises.The other key positive for Geometric is its revenue-mix. Over 40 per cent of its revenues comes from services delivered from low-cost destinations, offshore or offsite. This compares favourably with most mid-tier companies and significantly optimises costs.Attrition in the company, though declining, continues to be uncomfortable at 16.5 percent.Any wage hikes to stem this would affect margins.At Rs 71, the share trades at eight times its likely per share earnings for FY13. This is at a discount to peers such as Infotech Enterprises.The stock has run up by more than 50 per cent over the past 6 months.Although valuations are still attractive, given the steep nature of the climb, the Geometric stock can be accumulated on any corrections linked to the broader market.

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