Edelweiss - Spanco Telesystems and Solutions Limited.

6 views
Skip to first unread message

Sunil

unread,
Mar 19, 2007, 6:19:37 AM3/19/07
to dps...@googlegroups.com
Spanco Telesystems and Solutions Limited (Spanco), (CMP INR 200, MCap (fully diluted) INR 4.7bn , Not Rated) – Visit Note

 

The key takeaways from our recent meeting with Spanco Telesystems and Solutions are as follows:

 

Established in 1995, Spanco Telesystems & Solutions Ltd. is into two business lines - Telecom network integration business and IT enabled services.

 

In the system integration and networking business 90% of Spanco's revenues (FY07) flow from the government, which are classified across the following four verticals:

 

·          Telecom carriers : This segment accounts for 30% of the segment revenue, wherein Spanco's clients are BSNL, VSNL, MTNL, & Tata T eleservices.

·          Defense: In this segment Spanco mainly caters to the Ministry of Defense, the Para military forces, the Air force, DRDO, MCTE & the army commando forces. This segment contributes ~30% to its revenues.

·          PSU utilities : Railways, ONGC, Airports Authority of India, NTPC, PNB, DMRC, Railtel are the main clients in this segment and account for 15% of the revenue.

·          Government : The greenfield and the brownfield projects undertaken by the Airport Authority for India proves to be a business opportunity for Spanco and contributes around 15% to revenues

Annual maintenance contracts contribute 10% to revenues. In FY06 the telecom segment grew at 141.06% to INR 1338.45 mn contributing 62% to total    revenues.

 

Spanco's second line of business is the IT enabled services, wherein it operates a domestic as well as international call centre. Spanco demerged its domestic call centre business 'Sparsh' in January 2007, which was merged with Intelenet BPO Services (IBSL).

The continuing operations consist of 'Respondez', the Mumbai-based international call centre providing both inbound and outbound call management services. In FY06 the BPO segment grew at 68.5% to INR 832.2 mn contributing 38% to revenues.   

 

Recent Developments

 

Railways IRCTC Contract – the future growth driver

Spanco recently bagged the Railways order for setting up and maintaining the Railways Integrated Train Enquiry System (ITES). Spanco has tied up with BSNL, to provide a basket of services like basic enquiry services i.e. current train running position, PNR status enquiry etc. The call centre will also provide premium services and value added services like ticket reservations, taxi bookings, hotel accommodations etc. Spanco has won the license to operate four regional call centres at Dehradun, Kolkatta, Indore and Mysore (2000 seats across the four centres) for the next ten years. The project entails a capital outlay of INR 800mn for setting up the call centres and an annual operational expenditure of INR 300mn.

Spanco pegs the revenue opportunity from this project at ~INR 10bn over the ten year period, which would mainly accrue from

  • Revenue sharing with telecom operators for the incoming calls – Spanco is entitled to ~30 paisa per call with an expected traffic of ~2.5 mn calls per day.
  • SMS revenues for various services
  • commission on tickets, hotel bookings and
  • advertising revenues

 

Middle East operations

Spanco has entered into a strategic 51:49 joint venture with Goldenkey Solutions, Oman (an Al Bhaja group company), to address the telecom system integration market in the Middle East. This initiative is already yielding results for Spanco; it has commenced call center operations at Qatar for Qatar National Bank with immediate expansion on anvil. The company is also signing up 30% equity participation in Omania e commerce (OEC) where OmanTel is a majority partner holding 40% and is one of the 6 bidders for the broadband tender from OmanTel valued at 8 million RO (100+ crores).

 

Skandsoft Acquisition – foray into RFID solutions

Spanco has acquired a 51% stake in Skandsoft Technologies, which has a patented RFID middleware platform called "SETU". Skandsoft is currently implementing pilot projects for Apollo hospitals, Yes bank, Globus and various defense projects which it soon expects to be converted to full fledged systems in the near future.

 

Fund Raising

Spanco is raising ~INR 1.25bn through preferential allotment of shares and warrants to fund the IRCTC project as well as for the acquisition of the 30% stake in Oman e-commerce. The funds would also be used for upgrading Skandsoft's middleware platform as well as for working capital needs. Chrys Capital is subscribing to 3mn equity shares and 1.5mn warrants and UTI Investment Advisory to 1mn equity shares at a price of INR 214.9 per share. The company has also allotted 0.65 lakh share and 1.35 mn convertible warrants to the promoter Mr. Kapil Puri at INR 210 per share.

The fully diluted equity on issue of shares and conversion of the above warrants works out to be 23.5mn shares, a dilution of ~48.5%.

 

Financials

 

* Management guidance subject to change

 

Spanco has recorded an excellent performance in 9mFY07 with a y-o-y revenue growth of 132% and net profit growth of 112%, which we expect to continue on the back the growing business opportunity in the telecom sector as well as its foray into newer geographies and businesses. We also believe that the IRCTC project provides a sustainable revenue stream and also holds potential for significant revenue as well as bottom line growth. At INR 200, the stock trades at 13.4x its FY07E guided EPS of INR14.9 and 7.2X its guided EPS of INR 27.7.




--
http://DEADPRESIDENT.BLOGSPOT.COM
Reply all
Reply to author
Forward
0 new messages