About a month back, we released an updated report on ABM Knowledgeware Ltd (BSE – 531161)
In the report we had recommended a portfolio allocation of ~7% in the price range of Rs 65-70. The company recently announced its quarterly results for the quarter ending Dec’11 and we are glad to share the results with you. Its good to note that company has been consistently reporting more than 50% growth, without compromising on margins.
As can be observed above, ABM has recorded significant growth in Net revenue from Software & Services. Importantly, besides 60% growth on year on year basis, there’s a good 12% growth on quarterly basis.
Being a software service provider, ABM does not have very high fixed cost except for Employee cost and direct project expenses. Direct project expenses are lumpy in nature depending on the number of projects executed during a year or in any particular quarter, while once the project has been implemented, the company gets the service contract ranging from 2-8 years.
On account of slightly higher direct project expenses, the net profit growth is lower in comparison to revenue growth at 46% on yearly basis and 4.5% on quarterly basis. For the nine months ending Dec’11, the company has recorded a net turnover of 73.96 crore, surpassing FY 11 net turnover of 52.66 crore. Similarly the net profit for the period ending Dec’11 at 12.54 crore is 19% higher than the net profit of Rs 10.54 crore for the financial year FY 2011.
We expect the company to close the year with a net profit of Rs 15-16 crore, thus ending the year with a growth of 50% over FY 11.
The stock is currently available at 4.8-5 times FY 12 (E) earnings. This is despite the fact that company is generating consistent cash flows, operating in a segment with huge potential, is debt free with cash equivalents at 16% of its market cap, visible revenue stream in the form of service contracts.
Disclaimer: We ourselves and our members at Katalyst Wealth are invested in ABM Knowledgeware and therefore have a vested interest. Please carry out your own due diligence.
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