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Sasken Communication Technologies- Recently we met the management of Sasken to understand its current
business model, industry trends and execution strategy, going forward.
Sasken Communications, established in 1989, employs more than 3500
people and offers a combination of R&D consultancy, wireless software
products and software services and works with network OEMs,
semiconductor vendors, terminal device OEMs and operators across the
world. The key takeaways are highlighted below.
Client mining key to revenue growth
Though Sasken has ~120 customers, including Tier-I handset and
semiconductor manufacturers, its wallet share among existing clients is
not necessarily high. Going forward, Sasken’s strategy seems to be that
of focusing and mining select customers. Further, to aid this strategy, the
company continues to hire account managers, improve sales competency
and align service delivery to customer needs. Finally, the incremental
wallet share from customers such as Nokia and Qualcomm suggests the
early success of this strategy.
Vendor rationalisation exercise by handset clients may benefit Sasken
A discussion with the management suggests handset OEMs continue to
rationalise vendors from the current fragmented landscape. We believe
this could benefit Sasken given its domain expertise and since it is among
the top 10 vendors’ list for a majority of its customers. That said, Nokia
continues to shift work to low cost from high cost locations. Further,
offshoring volume that is getting ramped up is not in the same ratio as
onsite ramp-downs. Consequently, we believe incremental volume
growth in such a scenario could yield meaningful results for a protracted
period.
Network equipment business may remain lumpy
The network equipment business contributes ~15-20% of Sasken’s
revenues vs. 30-35% earlier. The revenue contribution decline was led in
part by the decline in the Nortel business coupled with the weak demand
environment. Further, vendor rationalisation led to Sasken’s exit from
Alcatel-Lucent, its top 10 customer in FY10. While Nortel acquirers Avaya
and Kapsch continue to work with Sasken, revenue growth from the
network business could be lumpy on account of the above-mentioned
reason and tepid demand from existing customers.
Vertical expansion may yield synergies
With its Ingenient Technologies acquisition in 2010, Sasken gained a
foothold in the consumer electronics vertical and access to customers
such as Kodak, Canon, JVC, Toshiba, Samsung Electronics, LG
Electronics, etc. The company intends to cross-sell its services to these
customers and expand to new services such as consumer electronics,
defence and surveillance. Noticeably, Sasken expects these business
segments to contribute 10-12% of its FY11E revenues.
Supply side concerns continue to mount
At 30% on an LTM basis, attrition at the company remains a key concern.
That said, the company’s attrition always stood above the industry
average. Noticeably, at 4.5 years, the average experience of its workforce
is amply high and could pose operational challenges while replacing
highly skilled resources. However, the company is now focusing on
building capabilities using its internal training engine to fill in the requisite
gaps. Though this would not yield results instantaneously, we believe this
could flatten the employee pyramid and aid operating margin upsides.
Buyback should support stock price in near term
Sasken has announced a buyback of equity shares from the open market
at a price not exceeding | 260/per equity share for an amount not
exceeding | 34.54 crore. At | 260, the maximum shares bought back
would be 13,28,461, which represents ~4.90% of the total paid-up equity
share capital. The buyback will commence on December 1, 2010. We
expect the same to conclude earlier than its stated time frame of one year
ending October 2011. Adjusted for buy-back and dividend payout, the
company should have ~| 150 crore of cash on its books.
View
Sasken is currently trading at a P/E multiple of 6.5x its FY10 diluted EPS of
| 26.8 and 0.82x on the Mcap/FY10 sales metric. Further, the company
provides a healthy dividend yield of 3.42%. The company has ~| 45 cash
per share after adjusting for share buy back and dividend payout. We
believe sustainable and meaningful revenue and earnings growth visibility
could result in a re-rating of the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sasken Communication Technologies- Recently we met the management of Sasken to understand its current
business model, industry trends and execution strategy, going forward.
Sasken Communications, established in 1989, employs more than 3500
people and offers a combination of R&D consultancy, wireless software
products and software services and works with network OEMs,
semiconductor vendors, terminal device OEMs and operators across the
world. The key takeaways are highlighted below.
Client mining key to revenue growth
Though Sasken has ~120 customers, including Tier-I handset and
semiconductor manufacturers, its wallet share among existing clients is
not necessarily high. Going forward, Sasken’s strategy seems to be that
of focusing and mining select customers. Further, to aid this strategy, the
company continues to hire account managers, improve sales competency
and align service delivery to customer needs. Finally, the incremental
wallet share from customers such as Nokia and Qualcomm suggests the
early success of this strategy.
Vendor rationalisation exercise by handset clients may benefit Sasken
A discussion with the management suggests handset OEMs continue to
rationalise vendors from the current fragmented landscape. We believe
this could benefit Sasken given its domain expertise and since it is among
the top 10 vendors’ list for a majority of its customers. That said, Nokia
continues to shift work to low cost from high cost locations. Further,
offshoring volume that is getting ramped up is not in the same ratio as
onsite ramp-downs. Consequently, we believe incremental volume
growth in such a scenario could yield meaningful results for a protracted
period.
Network equipment business may remain lumpy
The network equipment business contributes ~15-20% of Sasken’s
revenues vs. 30-35% earlier. The revenue contribution decline was led in
part by the decline in the Nortel business coupled with the weak demand
environment. Further, vendor rationalisation led to Sasken’s exit from
Alcatel-Lucent, its top 10 customer in FY10. While Nortel acquirers Avaya
and Kapsch continue to work with Sasken, revenue growth from the
network business could be lumpy on account of the above-mentioned
reason and tepid demand from existing customers.
Vertical expansion may yield synergies
With its Ingenient Technologies acquisition in 2010, Sasken gained a
foothold in the consumer electronics vertical and access to customers
such as Kodak, Canon, JVC, Toshiba, Samsung Electronics, LG
Electronics, etc. The company intends to cross-sell its services to these
customers and expand to new services such as consumer electronics,
defence and surveillance. Noticeably, Sasken expects these business
segments to contribute 10-12% of its FY11E revenues.
Supply side concerns continue to mount
At 30% on an LTM basis, attrition at the company remains a key concern.
That said, the company’s attrition always stood above the industry
average. Noticeably, at 4.5 years, the average experience of its workforce
is amply high and could pose operational challenges while replacing
highly skilled resources. However, the company is now focusing on
building capabilities using its internal training engine to fill in the requisite
gaps. Though this would not yield results instantaneously, we believe this
could flatten the employee pyramid and aid operating margin upsides.
Buyback should support stock price in near term
Sasken has announced a buyback of equity shares from the open market
at a price not exceeding | 260/per equity share for an amount not
exceeding | 34.54 crore. At | 260, the maximum shares bought back
would be 13,28,461, which represents ~4.90% of the total paid-up equity
share capital. The buyback will commence on December 1, 2010. We
expect the same to conclude earlier than its stated time frame of one year
ending October 2011. Adjusted for buy-back and dividend payout, the
company should have ~| 150 crore of cash on its books.
View
Sasken is currently trading at a P/E multiple of 6.5x its FY10 diluted EPS of
| 26.8 and 0.82x on the Mcap/FY10 sales metric. Further, the company
provides a healthy dividend yield of 3.42%. The company has ~| 45 cash
per share after adjusting for share buy back and dividend payout. We
believe sustainable and meaningful revenue and earnings growth visibility
could result in a re-rating of the stock.
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