Is Teledata a Bubble?

It's difficult to find an equity analyst tracking his company, but that doesn't faze K. Padmanabhan, whose dream for his group led by flagship Teledata Informatics is to be as big as TCS some day soon. He's got some way to go. For the first nine months of the year ending March 2007, Teledata had revenues of Rs 2,229 crore and profits of Rs 282.6 crore-TCS' corresponding numbers were Rs 11,034 crore and Rs 2,678.5 crore, respectively. What's impressive though is Teledata's growth rate during that period, against the previous year's corresponding nine months: 273 per cent in revenues, and 159 per cent at the net level. Over three years, its compounded annual growth is 200 per cent in profits and 112 per cent in sales.

Why then are brokerage houses not researching the stock-despite which the price has shot up 424 per cent over five months (until recently the stock was trading even below its earnings per share)? Teledata Informatics is debt-free, and has 27 software solution companies, which provide ERP and CRM solutions. It derives 95 per cent of its revenue from exports and, for good measure, is also the fourth largest ship-owner in India with 14 ships, and a global leader in providing ship management solutions. Says K. Padmanabhan, Managing Director, Teledata Informatics: "We haven't been able to generate confidence among investors. Therefore, we are increasing our stake in the company." As on December 31, 2006, the promoters' holding in the company was 14.34 per cent (till June it was below 5 per cent). Plans are to increase it to 25 per cent.

In the first week of December, Teledata made a demerger announcement, after which the stock with a Rs 10 face value took off-from under par to around Rs 50 at the time of writing. For every 100 shares of Teledata Informatics, shareholders will get 100 more shares plus 50 shares each of Teledata Marine Solutions and Teledata Technology Solutions. However, the face value of all the three companies will come down to Rs 2 per share. That may not be the most attractive demerger scheme in recent times. Says Amit Rathi, Director, Anand Rathi Securities: "Worldwide entities with multiple businesses suffer from conglomerate discount, as investors like to give premium to standalone business. However, companies with lower credentials demerge their businesses just to come in spotlight." Padmanabhan, meantime, is aiming for $7.5 billion (Rs 33,750 crore) in revenues by 2010. Should TCS watch out?