Stock Review: Megasoft

 

The stock of Megasoft, a Chennaibased mobile products company, continues to underperform the sector indices. Over the past three months, the scrip has fallen nearly one-fourth against a drop of 8% in the ET Infotech Index. The stock's grim performance can be attributed to the sluggishness in its revenues in the past four quarters.

Megasoft offers software and product-based solutions to telecom companies across the US, Singapore, Malaysia and India. XIUS is the company's US-based telecom division offering solutions to mobile operators world wide.

Over the past four quarters, the company has posted a more or less stagnant performance in its topline. Its revenue dropped by nearly 45% to 168 crore during the fiscal ended December 2010 against the previous year. However, reduced operational costs and lower interest expense provided cushion to the company's bottomline. It reported a net profit of . 20 crore against the loss of equal magnitude in the previous year.

During the year, the company repaid nearly half of its 197-crore debt by selling one of its three properties.

Mobile commerce, mobile advertising and small carrier infrastructure are the key growth drivers for the company. While its mobile advertising business is up and running in Malaysia, the company expects it to go live in the US soon. The company expects to widen its presence in India, Africa and Latin America.

Recently, Megasoft entered into a deal with Tata DoCoMo in the mobile commerce space. It is in talks with 14 other carriers in the similar business space. These tie-ups and the 3G network opportunities will be major catalysts of growth for the company in the medium term.

At the current market price of . 23.5, the stock trades at nearly five times its earnings for the trailing twelve months. Given the new product launches and new initiatives, Megasoft is likely to fare well in the coming quarters. However, high client concentration and uncertainties in the telecom industry globally make it a risky bet.