CMP = Rs 105 (as of June 8)
Price target: Rs 184
Result highlights
- ORG Informatics' performance was below expectations in Q4FY2007. Its revenues grew by 17% to Rs 70.4 crore, below our expectations. The revenue growth was dented partly by the slippage of some revenues to Q1FY2008.
- The operating profit margin (OPM) declined sharply to 1.3% (as against 9.5% in the nine months ended December 2006) due to the cumulative impact of the higher contribution from low-margin hardware supply part of the MTNL order, expenses related to integration and restructuring of the recently acquired entities (United Technologies and DGIT) and a one-time write-off (around Rs 1.3 crore related to provision for bad debts and stock adjustments).
- However, the steep jump in the other income and the write-back of tax provisions enabled the company to post a relatively higher growth of 24.7% in its consolidated earnings to Rs 5.3 crore.
- On the full year basis, the consolidated revenues and earnings grew by 97.6% to Rs306.6 crore and 113.7% to Rs 17.3 crore. The OPM declined by 110 basis points to 7.6% in FY2007.
- In terms of the outlook, the management expects to maintain the growth momentum on the back of a healthy order pipeline and the expected improvement in its margins as the high-margin maintenance revenues kick in from the MTNL contract.
- Moreover, the company would continue to actively scout for inorganic opportunities and has got the board approval to raise up to $30 million for the same.
- I maintain Buy call on the stock with a price target of Rs 184.
