praveen

ORG Informatics Buy; CMP: Rs130
Company background
ORG is transforming itself from a generic IT hardware and software service
company to a niche player with focus on the convergent IT and telecom space (ie
IT and telecom infrastructure integration services and solutions) and enterprise
IT solution business. The transformation is largely driven by the restructured
management team, which has reoriented the entire business model over the
past few years.

Key points
w Transforming into a niche player: With the restructuring initiatives taken by the
revamped management team, ORG Informatics is transforming itself into a niche
player, focused on providing integration services in the fast growing convergent
information technology (IT) and telecom space. It has also been able to successfully
leverage on its strong parentage to form exclusive marketing and technical alliances
with software product companies. This provides it a distinct advantage over its
peers.
w Significant improvement in performance: The restructuring initiatives have already
started yielding handsome results, both in terms of revenue growth and profitability.
The company has reported ten consecutive quarters of strong revenue growth with
considerable improvement in its overall profitability.
w Healthy order book position: The healthy order book position provides strong
revenue growth visibility. The company has an order book of around USD$130
million (or around Rs600 crore), which works out to 7x its FY2005 consolidated
revenues and 4x its current market capitalisation.
w Exponential growth not captured in valuations: The consolidated revenues and
earnings are estimated to grow at a compounded annual growth rate (CAGR) of
87% and 142% respectively over the two-year period FY2005-07. We recommend a
Buy on the stock with a price target of Rs194, which is 12x the average estimated
earnings of FY2007 and FY2008.