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Sasken Communication Technologies: Riding The Mobile Wave 

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DQI Bureau
New Update

It may seem that with the ongoing consolidation in the software services

area, the space for niche companies to survive and prosper would be shrinking.

However, size does have its own liabilities, especially in the high growth

sectors such as telecom, a number of small companies have thrived in an

environment that requires a strong domain focus and ability to handle smaller

clients. This is not something that majors would like to do and hence this space

remains one of the last bastions of the mid market players. As these companies

develop their knowledge about their customers and their businesses, we believe

that these companies could well transition into IP plays bringing value to both

their customers as well as their investors.

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Among the companies that have focused on niche markets and developed strong

domain skills in specific verticals is Bangalore headquartered Sasken

Communications Technologies. This approach which has enabled the company to

command higher valuations than many larger companies.

FACT

SHEET

Website:

www.sasken.com

 



Ring Road, Domlur,

Bangalore 560 071, India



Tel: + 91 80 2535 5501,


Fax: + 91 80 2535 1133

Area

of Specialization:




Telecom software solutions

Consolidated

Revenues


(March 06): Rs

308.13 crores
Offices:

India, Canada, China,

Germany, Japan, Sweden, UK and the U.S.
Listing

(Stock Exchanges):
BSE

and NSE
Face

Value:


Rs 10
Current

Market Price:
Rs

393
52-Week

High/Low:
Rs

435/240
BSE

Code:
532663
NSE

Code:
SASKEN

Sasken is a provider of products, software and support services for the

communications industry. The company's clients include terminal equipment,

network equipment manufacturers, semiconductor vendors as well as telecom

operators. Sasken provides both services and products in the embedded telecom

space and its client list includes customers like Nortel, Nokia and Motorola

among others. Established in 1989 by Rajiv Mody at San Jose along with two other

co-founders, the company is currently headquartered in Bangalore, with offices

in Canada, China, Germany, Japan, Sweden, UK and the US with 2,500 people. The

company's equity stands at Rs 27.9 crore. Promoters hold 27.1%, institutional

investors hold 44.7% while the public holds 28.1%.

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Services currently constitute almost 96% of the company's revenues.

Services provided by the company focus on product engineering in the wireless

space. The services cover development, maintenance and upgradation of the

product portfolio of its customers across different stages of the product life

cycle as well as network engineering services. The company also offers its own

products mainly for the terminal end equipment segment. These products are built

in partnership with other semiconductor companies and used by mobile phone

manufacturers. 

Consolidated revenue for the financial year ended March 2006 grew by 27.4% to

Rs 308.1 crore from Rs 241.7 crore achieved in the previous year. Software

Services revenue constituted 91% of the company's revenues and grew by 26.9%

over the previous year. Sasken's product business showed a decline due to the

fact that majority of the revenues are milestone based and most of the products

are under different stages of development. The company also entered the area of

network engineering services for telecom operators in India. The company hopes

to extend this service to overseas customers after gaining expertise from Indian

markets. Consolidated profit after tax increased during the fiscal ended 2006 by

0.6%, from Rs 22.7 crore to Rs 22.9 crore.

During fiscal 2006, the company began investing on a new product line, called

the “Integrated Solution” and amounts invested in the product line have been

capitalized. As a result, software product revenues declined to Rs 27.5 crore

during the year ended March 31, 2006 from Rs 33.9 crore during the year ended

March 31, 2005. The company successfully completed its IPO and raised Rs 130

crore by the issue of 5,000,000 equity shares of Rs 10 each at a price of Rs 260

per share. The issue was oversubscribed by about 76 times. The issue was

primarily used to set up infrastructure facilities for software development

adjacent to existing offices. 

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Sasken announced encouraging results for the first quarter ended June 30,

2006. The consolidated revenue stood at Rs 91.1 crore, in comparison to Rs 67.7

crore for the same period last year, an increase of 35% y-o-y. Operating income

for the quarter was Rs 13.0 crore, an increase of 68.9% y-o-y. Net profit for

the same period stood at Rs 8.6 crore, as compared to Rs 4.7 crore, an increase

of 81% y-o-y.

During the quarter, Sasken announced the acquisition of Chennai-based

Integrated Softtech Solutions (isoft Tech), a 110 people company. The deal would

add a Chennai development center to its already existing facilities in Bangalore

and Pune, and will be funded from the $20 mn it raised through a private

placement prior to its IPO.  It also

announced the 100% acquisition of Finland-based Botnia Hightech Oy (Botnia), a

provider of wireless R&D and testing services. Botnia Hightech is a supplier

of hardware, software, mechanical design and testing services to leading mobile

handset vendors.

Consolidated

Financials

Year ended 30th

March

2004

2005

2006

2007*

Revenues

166.1

241.7

308.1

373.2

Other Income

1.3

3.6

6.4

6.0

Operating Profit

27.5

35.5

48.1

71.5

Operating Profit Margin

(%)

16.6

14.6

15.6

19.1

Profit After Tax

18.3

22.7

22.9

37.3

Equity Capital

15.1

16.8

27.9

27.9

EPS (Rs)

11.5

12.8

9.0

13.3

*Projected



Note: All figures in Rs crore unless indicated otherwise. All figures

are rounded-off

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The employee strength increased to 2,897, a net increase of 322 in this

quarter. Revenue contribution from the top five customers stood at 76.7% for Q1

of FY 2007 in comparison to 76.3% for Q4 in FY 2006.

The company is confident of maintaining the revenue growth and margins from

the services segment while product revenues are expected to improve only in

fiscal 2008 that would significantly change the operating margins.

Sasken shares now trade at Rs 390 discounting its estimated EPS for FY 2007

by 29 times indicating the high valuation accorded to this high growth niche

company despite its small size. Most other software companies of this size would

be typically trading at less than 15 times next year earnings. We believe that

the company is enroute to a strong revenue growth coupled with improving margins

as the product revenues come onstream from FY 2008 onwards. The stock however,

is fully priced in the current context and is unlikely to move ahead of its

peers in the near term.

MARKET OUTPERFORMER.

Sushanto Mitra



The author is the director, Techcap India



sushanto@techcapIndia.com


The views reflected here are of the author and not of this publication. No
liability is accepted for losses based on the information presented here

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