Why Allied Digital Services Ltd?

Let us take some of points why Allied Digital Services Ltd (Rs.51.50) could give us stupendous returns over a period:

(i) It is less prone to get affected by any problem in the West, as it receives most of its revenues from the domestic market.

(ii) When the Outlook Money recommended it to its readers on 17th November, 2010, the scrip was trading at Rs.224. The Outlook Money wrote: "Considering its ability to show high growth in the past, the stock looks undervalued". Hence considering the book value of Rs.154.75, the CMP of the company is highly undervalued. 

(iii) Allied Digital Services Ltd (ADSL) has over two decades of experience in providing IT Services, to its clients across several domains and geographies. It generates around 70% of its revenues from the domestic market, while the rest of the revenues comes from the overseas market like the US and Australia.

(iv) The services provided  by ADSL are similar to other IT Companies, but it has managed to deliver superior growth rates in the last few years (with an exception of the last few quarters). Between FY07 and FY10, its total income increased four fold at a whooping CAGR  of 64.71%---the bottomline increasing in a similar pace.

(v) The company's focus on the domestic market, from which it gets around 70% of its revenues, helped them to sail safely through the recession; in the developed economies.

(vi) With the US and Australian economies looking good we can expect the exports margins to improve in the near future.

(v) Last years the company acquired two companies. It acquired 51.05% stake in Digicomp Complete Solutions Pvt Ltd to grow in the hardware repair services market. It was a very small deal worth about Rs.120mn or US$3mn. What’s more, Digicomp has formed a joint venture with a Singapore-based company.

(vi) Allied Digital Services Ltd acquired the services arm of En Pointe Technology Services that was listed on the Nasdaq stock exchange. It was purely a product re-seller. Its obligatory services business was worth about US$30mn. It is interested only in that. So, they carved out that division and it formed a joint venture. The name was changed to En Pointe Global Services. Allied Digital has 80.5% stake and En Pointe Technologies has 19.5% stake. This company gave Allied Digital Ltd, access to the US geography, American customers and a great sales team. At any given point, Allied Digital Services Ltd always keeps scouting the market for acquisitions that will be value accretive to the Company.

(vi) Gartner and Forrester have predicted that the information security market will grow multifold. The company has set up a state-of-the-art center some years back. ADSL manages the entire information security lifecycle.

It was  one of the early movers in this space. A lot of new opportunities are coming, such as virtualization and cloud computing, and ADSL is geared up for the same. The industry is also shifting from capex driven model to an opex driven model that it has taken the lead in implementing with many customers across the globe.

(viii) ADSL hopes to see a spurt in the Government space; as they expect that there could be huge spending on e-governance. The company bids for projects sometimes alone and sometimes with partners. Allied Digital Services Ltd hopes to keep growing the solutions business by 20-25%.

(xi) ADSL has an office in Singapore. It has a presence in South East Asia, Australia, the US and Europe. It has a presence in Australia also. But, there it has gone through partners. It  has signed up with 4-5 large systems integrators to help them service their customers by offering a cost-effective service delivery. The customers are owned by them. They then outsource to ADSL for service delivery.

(x) The management hopes to tap in the new wave coming in the Infrastructure Management space. The company has spent a good amount of money in FY11, as CAPEX.