Stock Review: Omnitech Infosolutions

 

Stock's P/E Has Jumped Significantly During Past 6 Months; Further Upside Seen Limited

 

THE stock of small-sized IT infrastructure company Omnitech Infosolutions has outperformed the broader indices by wide margins in the last three months. Its counter has seen continued investor interest following the company's robust performance in the last three quarters.

   It is currently doubling its capacity in IT-managed services by opening more service centres in India and abroad. This indicates the company's optimism about future business growth.

   The Mumbai-headquartered Omnitech, which earned 218 crore in revenue in FY10, offers IT infrastructure, applications, and performance-testing solutions. Its portfolio of services consists of systems integrations, remote infrastructure management, data centre management, and network connectivity solutions.

The company has reported a robust double-digit growth in sales and profits in each of the last three quarters. In the June quarter, its consolidated revenue shot up by 74% to 74.6 crore from the year-ago level, while net profit jumped by 80% to 13.6 crore. Omnitech has a high client concentration. Its topfive clients contribute nearly onethird of the total business, while half of the revenue comes from the top-10 customers. However, the company has adopted a strategy to focus on small and medium enterprises in banking and financial services, and manufacturing sectors. This may help the company reduce its over-dependence on a few clients.

   The company has drawn up plans to increase its global presence through subsidiaries and joint ventures. It currently has direct presence in Singapore and the Netherlands. These arrangements are expected to increase Omnitech's reach in these markets. Back home, it has plans to double its capacity to over 1,000 seats by setting up more data centres. It currently has centres in Mumbai and Hyderabad.
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   At the Tuesday's close of 256, the stock traded at eight times its trailing 12-month earnings. This is much higher than its P/E of about six three months ago, which reflects that the Street has factored in the possible double-digit growth in the coming quarters. Given this, further increase in the stock price of Omnitech looks limited unless the company reports a new growth trigger.