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Allied Digital Services
Weak quarter; exiting the low-margin business
Weak results. Allied Digital Services’ (ADSL) 2QFY11 revenue was
down 3% qoq. The company has a healthy order book of `5.88bn;
however, it is gradually exiting the low-margin, business. Hence, we
cut our FY11e and FY12e earnings 21% and 20% respectively and
reduce our target price to `275 from `325 earlier. Maintain Buy.
Key points. ADSL’s 2QFY11 revenue grew 18% yoy, but was
down 3% qoq. Margin was up 109bp qoq and 162bp yoy.
Consolidated net profit rose 18.5% yoy, although it was down
10.3% qoq.
Guidance. Management guided for FY11 PAT growth (`1.25-
1.28bn) of 30-32% over FY10.
Order book. ADSL saw an increase of `230m over 1QFY11 in its
order book which stands at ~67% of its 12-month forward
expected sales. The Solutions order book stands at `1.59bn and
Services at `4.29bn.
Introduction of FY13. We expect ~14% revenue growth in
FY13e, a 40bp margin expansion over FY12.
Change in estimates, target price. We cut our FY11e and FY12e
earnings 21% and 20% respectively and reduce our target price to
`275 from `325 earlier. The stock would trade at 9.5x on 12-
month forward (Sep ’11e EPS) FDEPS of `28.75, which is at
~50% discount to the average large-cap FY11e target EPS (19.1x).
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