Stock Review: Vakrangee

 

Vakrangee, a Mumbai based e-governance solutions provider, has caught investor attention after winning a slew of multi-year projects. The company's order book for FY12 looks strong with a potential to boost its profitability. However, at the current price level, its stock seems to fully account for the company's future expected growth.

The company offers hardware, software, and systems integration solutions to e-governance-related projects including automation of the public distribution system, enrollment facility under the unique identification (UID) programme, reconciliation of land record titles and related services. A majority of its revenue comes from such government projects. Vakrangee's revenue and sales growth in the past four years has been brisk. In FY11, its revenue doubled to . 890 crore and net profit shot up to . 48 crore from . 24 crore in the previous year.

Despite such high growth, its profitability has remained low relative to other medium and small IT companies. It earns less than 6% in net margin compared with margins of over 10% for some other IT players of similar size. According to the company's chairman and MD, Dinesh Nandwana, margins were low in the past since Vakrangee executed projects as part of a consortium. This, however, is expected to change now that the company has started bidding for projects independently. Nandwana expects to improve the company's net margin to 10% in FY12.

Vakrangee recently won the UID enrollment project where it will assist Union Bank of India to enroll over 30% of Indian citizens under the programme. Nandwana pegs the revenue potential of this project to . 1,500 crore in the next four years.

The new projects are likely to add over . 420 crore to the topline in FY12. The company has also submitted bids for 17 other projects worth over . 12,000 crore across various Indian states. Their status will be known in the next six months.
Vakrangee's stock has earned 32% return in the past six months compared with the 3.4% fall in the ET Infotech index. At Wednesday's close of . 357.2, the stock trades at a trailing P/E of 18.5, which is much higher than P/Es of 8-10 for smaller IT companies. Given this, the stock seems to be richly valued considering its future potential.