Geodesic Ltd

Investors can buy the shares of Geodesic considering the strong client adds in some of its key businesses, the expanding footprint in domestic e-governance deals, and relatively attractive valuations. Geodesic is a niche software products company focussed on providing instant messaging platforms. At Rs 137, the stock trades at a bargain valuation of six times its likely 2009-10 per share earnings. There are no comparable stocks to Geodesic, but at this valuation, it trades at a huge discount to technology stocks and the broader markets.

Over a three-year period, the company has seen its revenues grow at a compounded annual rate of 153.6 per cent to Rs 659 crore in FY09, while net profit grew by 133.2 per cent to Rs 242.1 crore. In the economic slowdown that was intense in the latter half of 2008 and most of 2009, the company was faced with pricing cuts and tightening client budgets, some of whom actually shut down. Yet, Geodesic has seen revenues grow by 14 per cent for the first half of this fiscal at Rs 317.6 crore compared with the same period last fiscal, while profits fell by 12.7 per cent due to increased marketing costs and forex losses.

Geodesic derives most of its revenues from developing instant messaging platforms/services, Internet radio, IP telephony and other such applications and licensing them to enterprises as well as retail users (directly or indirectly) under the ‘Mundu' brand. The company's products cater to portals and publishers, telecom operators, mobile handset manufacturers, system integrators and even retail consumers. The company has added new clients in nearly all its segments of operations. Usage of its retail offering instant messaging, VoIP platform and mobile SMS over IP has witnessed a rapid increase. With all these segments set to expand in a big way as companies and portals, offering social networking, etc., seek to cut costs, Geodesic is well positioned to tap into this opportunity.

It has a developed revenue model comprising licence fees, customisation fees, per-usage fees and recurring revenues. In fact, 55 per cent of its revenues are recurring revenues. This enables revenue visibility and better margins as well.

At home, the company has won a deal from the Madhya Pradesh Government for implementing its public distribution system using its GeoAmida Simputer. Other deals include traffic management and the NREGA (now Mahatma Gandhi NREGA). Chandamama, the children's magazine that it owns, has also witnessed a ramp-up in revenues.

Rupee appreciation and increase in wage costs are key risks to this recommendation.

via BL