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TheAsianInvestor    


Mumbai, India

As a long-term investor, I focus on undervalued stocks having potential to generate market-beating returns. Focus is entirely on multi-bagger stocks that are being categorized as small-cap or mid-cap.

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CYBERTECH

Comments: 0 | Likes: 0 | Current Price: ₹ 152.85


CyberTech Systems and Software Limited: Let's uncover factors likely to support growth

Revenue growth of CyberTech Systems and Software Limited is likely to stem from sales and digital sales, cashflow management, focus on high-margin products, etc. Increased use of geospatial analytics, internet penetration, infrastructural developments, growth in cellular networks, and other key factors should support growth of geospatial industry. Both margins and revenue growth of the company should come from US market.


Overview of CyberTech Systems and Software Limited

CyberTech Systems and Software Limited is CMMI Level 3 company, focused on SAP digitalized solutions and next-gen spatial analytics. It delivers benefits of SAP S/4HANA with digital business processes that improvise customer experience, provide real-time and predictive insight and enhances productivity. Its spatial analytics deliver digitization benefits by integrating maps with enterprise data. It is trusted partner for global enterprises, and it helps them with Cloud transformation.

Growth Enablers of CyberTech Systems and Software Limited

  • Strong end to 1H23: Operating revenue of CyberTech Systems and Software Limited increased by 17% year-over-year to INR794.3 million. Adjusted EBITDA of the company, excluding positive impact of one exceptional item during 2Q last year, saw a growth of 24% year-over-year to INR199.8 million. Such strong growth exhibits its focus on cloud transformation. The company’s association with SAP contributes to provide new business from SAP S/4HANA for cloud migrations. This remains a focused business for the company as enterprises expedite their journey to cloud with SAP. As of Sept 30, 2022, total active client count came in at 60. Industry-wise, revenue from technology sector saw strong momentum. As a result, technology business made 69% of the company’s operating revenue. Geography-wise, its US business was and continues to act as major contributor with a contribution of 99% to its operating revenue.

  • Cloud transformation demand supports FY22 results: CyberTech Systems and Software Limited saw strong results for FY22 as its revenue grew 19% to INR1,488 million for year and EBITDA has risen 28% to INR380 million. Growth in these measures stemmed from continuously growing market demand for cloud transformation. Progress was seen across 3 strategic growth areas – SAP Cloud, Esri Cloud and Spatialitics Cloud. This strengthens relevance of the company’s offerings and capabilities to deliver value for clients. PAT came in at INR227 million. Partnership with SAP strengthened in FY22 as its continued association with SAP Migration Factory on several HANA Migration initiatives with clients globally.

 

  • Focus on high-margin applications: CyberTech Systems and Software Limited has partners like SAP, Esri Partner Network, CISCO, Microsoft, and SalesForce and these companies are major global IT players. It focuses on applications including geospatial and geoshield and these applications have high margins. Another factor favouring long position for the company is that it has strong EBITDA margins. Better realisations in US market have led to margin expansion. It also has comfortable credit measures as its cash balance exceeds total debt by a wide margin, further ensuring strong growth. One factor helping the company’s credit metrics is that it is not largely dependent on external debt.

 

  • Healthy and stable outlook: Year gone by was dominated by Covid-19 pandemic. However, with global economies reopening, situation has become much more stabilized. 2H23 should see lesser supply chain disruptions which is expected stem the company’s growth momentum. Geospatial industry continues to expand rapidly, with growth momentum being fuelled by higher adoption of advanced technologies and sound integration with mainstreaming. Covid-19 pandemic sped up cloud migration and digital transformation, with majority of these changes being permanent. Enterprises continue to revisit their investment strategies in this demand-driven and competitive market. Geospatial data and location intelligence are being considered for faster economic recovery. CyberTech Systems and Software Limited continues to experience higher adoption of high-performing cloud and digital infrastructure by its customers. The company should be able to compound its revenues by ~15-18% over FY22-FY25E, with much of this growth likely to come from sales and digital sales, cashflow management, focus on high-margin products, etc. CyberTech Systems and Software Limited focuses on delivering managed ArcGIS cloud services, development of Spatialitics products, and SAP S/4Hana and cloud migration.

Industry overview: In recent fiscal year, global economy saw significant slowdown primarily because of prolonged trade disputes, uncertainty about Russia-Ukraine war, policy uncertainties and COVID-19 pandemic. Pandemic crisis is providing an opportunity to accelerate shift to more productive, sustainable, and equitable growth. This can be done through investment in new green and digital technologies. Stronger global cooperation is more important now to deal with this crisis situation and speed up economic recovery.  According to Future Market Insights, global geospatial solution market should grow from US$703.5 billion in CY22 to US$1,970.9 billion by CY29, compounding at 15.9% between CY22-CY29. This growth is likely to stem from factors including growing urbanization, rising adoption of technologies including remote sensing, GIS/ spatial analytics, global positioning systems (GPS) and 3D scanning across various applications.

US continues to dominate consumption trends

United States market should be one market consuming a significant chunk of geospatial solution and this consumption should compound at ~11.7% during CY22-CY29E. U.S. geospatial solution sales should touch 2.1x by CY29 in geospatial solution market. Advancements of geospatial technologies and increasing implementation with remote sensing applications are expected to be principal growth factors for this growth. Since CyberTech Systems and Software Limited generates ~99% of its revenue from US market, the company should be principal beneficiary. APAC and Europe are being considered as main users of geospatial technology, further boosting growth opportunity significantly.

Global cloud GIS market should surpass US$5.21 billion by CY26, compounding at ~19.7% between CY21-CY26. Growth should stem from higher demand from location-based services market as US region continues to make investments in usage of GIS technology in several industries including natural resources, utilities, construction and mining, etc.  

Absurdly cheap valuation means go long

CyberTech Systems and Software Limited has a total market cap of INR38,457.30 lakhs and a free float market cap of INR18,984.43 lakhs. Despite Indian economy going through a difficult phase, the company is all set to see strong growth in upcoming quarters and years. CyberTech Systems and Software Limited is being well-perceived by its investors and industry is seeing growth phase.

It has compounded its total revenue at ~12.8% between FY19-FY22. The company is in a healthy position to cater to market demand.  The company also focuses on reinvesting its earnings while paying dividends. This sounds like it actually believes in sharing profits. It has been well-proved that growth in earnings results in share price increases and the company’s track record suggests that it should be able to continue its growth. Indian IT's core competencies and strengths attracted significant investment. Computer software and hardware sector in India saw an influx of cumulative FDI worth USD45.97 billion between April 2000 and June 2020.  India is topmost offshoring destination for IT companies globally. Having proven its capabilities, emerging technologies offer an entire new gamut of opportunities for leading IT firms in India.

Stock of CyberTech Systems and Software Limited trades at ~16.9x of FY22 EPS, which is at a discount to sectoral average of ~22.23x. Lower valuations and focus on reinvestment of earnings makes it viable to be a part of portfolio.

Disclosure:

I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure:

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.

Disclosure legality:

I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.

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