Recommendation From IT- Software Sector

Here is Why

Over the past two decades, India has become the leading destination for global IT services sourcing, business process services and research and development services. The IT industry is being reshaped in numerous ways. The Indian government’s new initiatives such as Make in India, Smart Cities, Digital India would help the industry to grow in the near term.

Virinchi is an information technology (IT) products and services company. The company is engaged in software development and research. Its segments include software products and services, IT-enabled services and infrastructure and real estate services. Virinchi offers various services, including application development, data warehousing, web services, enterprise application integration practice (EAI), testing services, maintenance and support practice, packaged development services, managed services and data centre services.

Virinchi Healthcare, a 100 per cent subsidiary of Virinchi, expanded its footprint into healthcare sector by setting up a 600-bed super specialty hospital in the upmarket Banjara Hills in Hyderabad at an investment of Rs 300 crore. The company has raised Rs 70 crore from Canara Bank-led consortium of lenders, while the remaining funds for the project were raised internally.

On the financial front, Virinchi’s revenue increased 12.48 per cent to Rs 115.88 crore in H1FY17, as compared to the same period in the previous fiscal. The company’s EBITDA too rose 54.05 per cent to Rs 21.27 crore in H1FY17 on a yearly basis. Its EBITDA margin expanded 521 basis points to 18.22 per cent in H1FY17, as compared to the same period in previous financial year. Virinchi’s net profit also soared 63.23 per cent to Rs 8.13 crore in H1FY17 on a yearly basis. The company’s net profit margin expanded 227 basis points to 8.13 per cent in H1FY17, as compared to the same period in previous financial year.

Virnchi’s topline increased 25.61 per cent CAGR from FY12 to FY16. The company’s EBITDA rose 13.08 per cent CAGR over the last five financial years. Its bottomline also increased 24.63 per cent CAGR during the last five fiscal years. Virinchi’s ROE stood at 14.17 per cent and ROCE at 11.39 per cent in FY16.

On the segmental revenue front, Virinchi earned 40.95 per cent from software products, 56.19 per cent from software services, 2.72 per cent from IT-enabled services and 0.14 per cent from infrastructure and real estate services in FY16. Virinchi’s debt-to-equity ratio stood at 0.9x in FY16, which is quite healthy.

On the valuation front, the share price of Virinchi is trading at a PE multiple of 5.52x as against peers such as GSS Infotech (11.9x), Allied Digital Services (24.74x). The company’s PE multiple is quite attractive as compared to industry PE multiple of 15.01x. On robust financial performance and attractive valuations, the stock is a good buy at the current level.