Stock Review: SmartLink Network System

 

 

SmartLink Network System is actually a memorandum of understanding (MoU) with D-Link, Taiwan. They got this space segregated between the Indian partners and foreign partners. If one looks at the core business of SmartLink, it has a good potential because the business they are into has got tremendous visibility going forward. If I see the entire aspect with 3G spectrum and WiMax coming in the following years and if one looks at the study conducted by BSRIA, the market size for the business can double or triple in less than 3 years. DIGILINK is the brand that SmartLink owns and is the second largest player into structured cable and other services. In India it's the largest player after AMP Tyco.

Looking at the entire aspect for this particular business, the company's market cap is just Rs 200 crore and the sales are going triple from five years perspective. The company is going to make that 10-12% of net profit margin. If one sees the periphery they are into, and see bigger players who are into forward basis, for example Hathway Cables and other players, they are roughly trading at 20-22 times PE multiple and this stock is not trading even at double-digit PE multiple if I adjust from the mutual fund liquid investment they are owning into the books.

Approximately, they own Rs 90 crore worth of liquid mutual funds and quality mutual funds like HDFC Top 200 etc. This was what was reflected last year. If I see the entire equity market momentum growth, this mutual fund could actually replicate the entire market cap of the company.

The promoters of the company have been aggressively acquiring the stake into the company from 62% previous two quarters the promoters have moved to 65%. We feel this stock has got tremendous potential looking into their partnership with foreign players like Singapore's number one memory-maker and other players and their recent announcement DIGISOL into the active networking products that we are banking on for the WiMax and 3G spectrum space, we think this has tremendous space going forward.

It would be difficult for us to assign actual target for the stock because once the stock gets into limelight and shows its performance, it will result into a profit momentum growth along with PE expansion. so even on a conservative side if I say that 13-14 times forward the stock would be somewhere around Rs 102 from a years perspective and given that this company will grow at approximately 20-25% way above its peers given that it has a bran which has got visibility and if someone has a patience for two years perspective, it will be at Rs 145.

The company pays a regular dividend and last year it paid Rs 2.5 dividend. Given all these things we feel there is limited downside and tremendous upside from current levels.