Intrasoft Technologies Ltd.

Transcription

1 August 23, 2010 Intrasoft Technologies Ltd. Free Greetings for the Planet. CMP Rs. 85 Target Rs. 106 Initiating Coverage- Buy Key Share Data Face Value (Rs.) 1 Equity Capital (Rs. crs) Market. Capitalization (Rs. crs) wk High / Low (Rs. ) 167 / 82 Average Yearly Volume BSE code NSE code ISFT Reuters code INSO.BO Bloomberg code - Shareholding Pattern 30 th June 2010 Non corporate holding, 16.1 Public, Foreign, Company Profile Intrasoft Technologies Ltd (ITL), famously known as 123 Greetings, offers free e-greeting cards and is the largest electronic greeting website in India and world s second largest e-greetings website (by number of unique visitors). It offers over 20,000 electronic greeting cards covering over 3,000 every day and seasonal categories. ITL provide content that capture expressions identifiable with various cultures, values, religions and emotions. Investment Rationale 123G- Prominent destination for advertisers and users 123G is the largest electronic greeting website in India and the second largest electronic greeting cards website in the world (according to com Score media matrix). It provides e-cards for 3000 seasonal and everyday categories including annual events and holidays. Strong market position makes the website prominent destination for advertisers and electronic greeting card users. Financials (Consolidated) (Rs. Crore) FY09 FY10 FY11E FY12E Net Sales Sales Gr 9% 37% 44% 53% EBIDTA PAT PAT Gr 21% 65% -5% 55% EPS (Rs.) Adj. EPS Key Financial Ratios FY09 FY10E FY11E FY12E Div. yield % 0.9% 1.2% 1.2% P/E P/BV P/Cash EPS MCap/Sales EV/EBIDTA ROCE 13% 15% 9% 13% ROE 13% 15% 7% 10% EBITDM(%) 26% 32% 28% 30% NPM (%) 25% 30% 20% 20% Debt-Equity Performance comparison ITL v/s BSE Smallcap Rs Close Price Apr-10 May-10 Jul-10 Aug-10 SKP Securities Ltd Promoter, 59.4 BSESMALLCAP Analyst: Kamna Jain Tel No.: , Mobile kamna.jain@skpmoneywise.com Rs. Using their expertise for online gifting services Company is exploring the possibility of online gifting services on their website to seize advantage from their substantial user base which will add growth to the top line. Company is entering into e-commerce relationships with leading vendors in a variety of gift categories. Extensive user and advertiser relationship Strengthening Top line Company seeks to develop, establish and maintain continuing relationships with its users and advertisers. Company reaches out to its users through social networking sites, blogs and other media to ensure continued relationship. Advantage over traditional greeting card and subscription based electronic greeting card companies Free of cost services, various designs, and rich user experience and secure and instant delivery of the greeting cards are important factors to attract more users on the site. Attracting the traffic on the site 123G is a category leader for e-cards across major search engines like Google, Yahoo, MSN and Ask.com. Privacy of users, superior technology and dynamic content management are few features which leads to enhanced user experience thereby increasing traffic and number of advertisers. Valuation The company s website is largest electronic greeting card website in India and second largest in the world. At current market price of Rs. 85/-, ITL is trading at PE of 15.0x and 9.7x of FY11E and FY12E earnings of Rs and 8.76 respectively. We recommend BUY rating on the stock with a target price of Rs. 106/- (25% upside) in 12 months at the P/E of 12x on FY12 earnings. Page 1 of 8

2 Industry Overview Online Advertising Industry According to the IAB Internet Advertising Revenue Report for 2009 (first six months results), Internet advertising revenue in the United States totaled $10.9 billion. According to the IAB Internet Advertising Revenue Report for 2008 full year, the Internet has continued to grow in significance when compared to other ad- supported media. U.S. Advertising Market Media Comparison 2008 ($ Billions) N e w s p a p e rs $ TV D is t rib u t io n $ I n t e rn e t TV -N e t w o rk s : C a b le $ $ R a d io TV N e t w o rk : B ro a d c a s t N e t w o rk $ $ C o n s u m e r M a g zin e s D ire c t o ry Tra d e A d v e rt is in g O u t o f H o m e $ $ $ $ 7. 2 $ 0 $ 5 $ 1 0 $ 1 5 $ 2 0 $ 2 5 $ 3 0 $ 3 5 $ 4 0 Source: Company & SKP Research Internet Ad revenues by major industry 25% 20% 15% 10% 5% 20% 16% 12% 11% 10% 6% 6% 4% 4% 4% 0% Retail Telecom Financial services Automotive Computing Consumer packaged foods Tr avel f irst six mo nt hs Entertainment Pharma Media Source: Company & SKP Research E-Greeting Card Industry According to a report by the Mintel International group Ltd, In the United States, greeting cards are a $ 10.8 bn market, with Christmas ($3.2 bn), Birthday ( $2.6 bn) and Valentine s Day cards($1.1 bn) representing the top three segments. The number of cards sent annually for Christmas has reached an estimated $ 2.2 biliion Greeting card markets are expected to grow between 6% and 8% annually during calendar year The average person receives more than 20 cards per year, about a third of which are birthday cards. SKP Securities Ltd Page 2 of 8

3 Company Overview Intrasoft Technologies Ltd (ITL), Intrasoft Technologies Ltd, through its website offers free e-greeting cards, which is the largest electronic greeting website in India and world s second largest e-greetings website (by number of unique visitors). It offers over 20,000 electronic greeting cards covering over 3,000 every day and seasonal categories. ITL provides content that capture expressions identifiable with various cultures, values, religions and emotions. It has a dedicated content development team consisting of 16 creative professionals, who conceptualize, develop, create and provide artistic, photographic and musical content. Advertisers include major U.S. and India based organizations in the entertainment, retail, IT and internet verticals. Company also has certain number of advertisers and users from Europe. ITL intends to focus on the markets in China, Japan and other countries in East Asia. ITL also targets social networking sites to build brand awareness, increase visits to its Website and advertisement revenue. It currently provides its services in the form of applications on the social networking websites like facebook.com and twitter.com. ITL seeks to develop, establish and maintain continuing relationships with users and advertisers. 123G interacts with users through newsletters, social networking sites, blogs and other media to ensure continued relationship and rich user experience. Revenue Mix F Y07 India, 6.13% F Y 1 0 In d ia, 3 0 % O v e r s e a s, 7 0 % Ov ers eas, 93.87% Source: Company & SKP Research Investment Arguments 123G - Prominent destination for advertisers According to com Score media matrix, is the largest electronic greeting website in India with a sum of total 14.6 million unique visitors during the twelve month period from September 2008 to August The website is the second largest electronic greeting cards website in the world with 91.4 million unique visitors during the twelve month period from September 2008 to August It provides e-cards for 3000 seasonal and everyday categories including annual events and holidays. 123greetings.com is a well established and widely recognized website and brand name in India and around the world for e-cards. This market position makes the website prominent destination for advertisers and electronic greeting card users. SKP Securities Ltd Page 3 of 8

4 Extensive user and advertiser relationship strengthening top line Sales (Rs. in crore) Net sales CAGR of 44% FY 09 FY 10 FY 11E FY 12E Company seeks to develop, establish and maintain continuing relationships with its users and advertisers. Company reaches out to its users through social networking sites, blogs and other media to ensure continued relationship. Company also has a team of external consultants in the United States and Singapore and sales and support teams in India that market their offerings and provide support services to their advertisers. Company is also putting constant efforts to acquire various advertisers across industries and focusing on to capture a greater share of their existing advertiser s online advertising budget. Advantage over traditional greeting card and subscription based electronic greeting card companies Users prefer e-cards over traditional greeting cards for the several reasons: Services are free of cost and do not involve any postage charges This offers designs to the users compared to very limited designs at any store E-cards offer a rich user experience through multimedia features such as music, videos and animation Users can customize the message according to their personal interest It permits user to send the card to large group of recipients It provides private, secure and instant delivery of the greeting cards We believe that non subscription based policy followed by the company is also an important factor to attract more traffic on the site as many users prefer sending free electronic greetings cards over traditional greeting cards or subscription based e-cards. Using their expertise for online gifting services Company is exploring the possibility of online gifting services on their website to seize advantage from their substantial user base which is expected to add growth to the top line. Company is entering into e-commerce relationships with leading vendors in a variety of gift categories. Currently company will envisage only the process of payment and would not require any working capital or the requirement to maintain an inventory. Attracting the traffic on the site Popularity of the website enhances its charm as a location for advertising on the internet. Company s sales team is aggressively building its brand through online and traditional advertising. 123G is a category leader for e-cards across major search engines like Google, Yahoo, MSN and Ask.com. To match the standard of the international markets. company is customizing its services to cater to the local requirements of those geographies, through development of new content in foreign languages. This site also permits its users to customize their electronic greeting cards according to their preferences through selecting background-tunes, background colour and personal messages in various fonts, colors and styles. Social networking sites, frequented by young adults will help 123G to gain brand visibility and build awareness about the company and the services it offers. Privacy of users, superior technology and dynamic content management are few features which lead to enhanced user experience thereby increasing traffic and number of advertisers. SKP Securities Ltd Page 4 of 8

5 Key Concerns Any slowdown in global economy: A significant proportion of ITL s revenue comes from global market, where US constituted 60% of total revenue in FY10. Hence any slowdown in the global economy or US economy or any reduction in advertising spending may adversely affect company s performance. Increasing competition: The market for online card is highly competitive as there are no substantial barriers to entry in this market. If competitors are capable enough to make their website more accessible or to provide better content to users then ITL could experience a significant decline in the user traffic. Mass usage of social networking sites: Incremental use of social sites such as Facebook, Twitter etc. for sending direct wishes is now more popular, fast and convenient, even though links to 123greetings are available. Valuations & Outlook The company s website is largest electronic greeting card website in India and second largest in world. At current market price of Rs. 85/-, ITL is trading at PE of 15.0x and 9.7x of FY11E and FY12E earnings of Rs and 8.76 respectively. We recommend BUY rating on the stock with a target price of Rs. 106/- (25% upside) in 12 months at the P/E of 12x on FY12 earnings. SKP Securities Ltd Page 5 of 8

6 Financial Outlook Topline to grow at a CAGR of 44.4% over FY09-12E For FY10, Intrasoft Technologies Ltd registered a 36.6% rise in net sales to Rs crore on account of increase in advertisement revenue. Rs. in crore % 37% 9% FY09 FY10 FY11E FY12E 53% With further increase in advertisement revenue by attracting more traffic on the site, providing platform for online gifting services, improved realization on account of economy revival in USA, we expect revenue to grow at CAGR of 44.4% over FY09-12E. Net sales % Growth 4 EBITDA margins are likely to remain in the range of 27-30% Rs. in crore FY09 FY10 FY11E FY12E EBITDA EBITDA Margin(%) 3 1 EBITDA margin (%) ITL Ltd has witnessed an EBITDA margin of 32.5% in FY10 as compared to 26.3% in FY09. We estimate EBITDA to grow at a CAGR of 52% over FY09-12E to Rs crore in FY12E on account of higher revenue, better utilization of resources and cost effectiveness. EBITDA margin for next few years will be slightly under pressure on the back of launching up of new features and spending more towards branding and promotion. We expect EBITDA margin to be at 27.9% and 29.5% for FY11E and FY12E respectively. 4 Net Profit to grow at CAGR of 34.3% over FY09-12E Rs. in crore PAT margin(%) We expect Net profit margin to go down to 19.7% and 20% for FY11E and FY12E respectively. Higher amount of depreciation and elevated effective tax rate are expected to result in contraction of Net profit margin for coming years. FY09 FY10 FY11E FY12E Net Profit PAT Margin (%) Source: SKP Research SKP Securities Ltd Page 6 of 8

7 Consolidated Financials for FY March (Rs. in Crore) Income Statement Balance Sheet Intrasoft Technologies Ltd. Financial Year FY09 FY10 FY11E FY12E Net Sales Growth (%) 8.92% 36.57% 44.47% 52.56% Total Expenditure Operating profit Growth (%) 17.09% 68.53% 24.20% 61.31% Depreciation EBIT Interest Interest Coverage (x) Other Income PBT Tax PAT Growth (%) 20.54% 65.16% -5.35% 54.92% O/S shares EPS (Rs.) Adj. EPS* Cash EPS (Rs.) DPS (Rs.) Ratios Year End March FY09 FY10E FY11E FY12E Valuation Ratios Price Earning (P/E) Price / Book Value Price / Cash EPS EV / EBIDTA Market Cap / Sales Earning Ratios OPM (%) 26.3% 32.5% 27.9% 29.5% NPM (%) 24.9% 30.1% 19.7% % RoNW (%) 13.0% 15.1% 7.0% 1% RoCE (%) 13.0% 15.0% 8.8% 12.6% DPR % 9.4% 17.7% 11.4% Balance Sheet Ratios Debt-Equity 0.1 Current Ratio Debtors Days FA/Turnover *Note: EPS for FY09 and FY10 has been adjusted by taking the current equity base after IPO Year End March FY09 FY10E FY11E FY12E Equity capital Preference share capital Reserves & Surplus Shareholder's Fund Total debt Sources of funds Net Block CWIP Intangible assets Investments Total Current Assets Debtors Cash & Bank Balance Loans & Advances Other current assets Total Current Liabilities Net Current Assets Deferred tax assets Misc. Expenses Uses of funds Book value per share Cash Flow statement Year End March FY09 FY10E FY11E FY12E Profit before tax Add: Depreciation, Int. & other expenses Net changes in working capital Direct taxes paid Cash Flow from Operating activities Capital expenditure Change in Investments Dividend, Interest & others Cash flow from investing activities Cash Flow from Financing activities Cash Flow during the year Opening Cash Cash & cash equivalent SKP Securities Ltd Page 7 of 8

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