Elnet Technologies Ltd (ELNET.BO) pioneered the concept of Software Technology Parks in India. The company’s core competence is to develop and manage infrastructure services to software and business process outsourcing companies. The company owns Elnet Software City Ltd, a software technology park along India’s IT corridor in Chennai.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”] The 170,000 sq.ft complex houses 2,500 employees from 18 companies and has an occupancy level of 100%. Among the tenants are some leading international IT enterprises that contribute substantially to India’s IT exports. A key feature of Elnet Software City is the provision of a reliable and uninterruptible power system.
Elnet Technologies was founded in 1990 and is headquartered in Chennai, India. The shares are listed on Mumbai’s Stock Exchange since 1994. Major shareholders are the founding companies Electronics Corp. of Tamil Nadu Ltd, a government undertaking, and Stur Technologies Pte Ltd with an ownership of together 37%. The managing director’s spouse holds 9% in the company. 47% of the shares are in public hand.
Elnet Technologies depends directly on the prospects of the software and business process outsourcing industry. In the opinion of the management, the outlook for this sector remains good despite fears from US protectionism and the Brexit. The company expects the demand for serviced office space to stay at the same level.
India has emerged as one of the first destination for business process outsourcing in recent years due to an enormous amount of well-trained human resources and low labor costs. This gives India still an advantage over other competitors in Asia. India has a share of around 57% in the world’s business process outsourcing industry. Revenues in this industry are expected to grow at rates between 7-8% for the export and between 10-11% of the domestic market in the next two years. The exponential increase in digital use in almost every industry will boost the overall number of jobs created in information technology. IT services spending is expected to grow around 5%.
With a workforce of only 14 employees, Elnet Technologies reported revenues of 67m INR (1m USD) and profit before tax of 34m INR (0.5m USD) over the latest quarter 2017. This is an increase of 7% and 37% respectively compared to the same period a year ago. In 2016, revenues and profits increased 3% and 23% respectively. The operating margin of 58% is well above industry average. Elnet Technologies had cash reserves of 170m INR (3m USD) at the end of March 2017. The company shows a solid balance sheet with an equity ratio of 75% and a gearing, defined here as total liabilities to total equity, of only 33%.
Elnet Technologies’ shares are in an uptrend since July 2013 and more than quintupled in value since, 55% alone this year. The company is priced at seven times earnings. The shares trade slightly below book value and at four times cash flow. The company pays only a small dividend yielding around 1%.
With a market capitalization of only 9m USD, Elnet Technologies is a relatively small company. However, the company comes with a low valuation, a healthy balance sheet, and little debts. The 100% occupation level limits the potential for further growth currently. We expect therefore the announcement of expansion plans in the near future. It is worth keeping an eye on this company.
AIS Rating: ★★★★☆
| 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | 2016/17 | 2017 Q1 only |
|
|---|---|---|---|---|---|---|---|
| EPS (INR) | 10.5 | 13.5 | 14.6 | 14.1 | 16.1 | 19.6 | 5.6 |
| Change | 15% | 28% | 8% | -4% | 15% | 22% | 39% |
| P/E | P/E SECTOR |
P/B | P/CF | Equity Ratio* |
ROE | Debt/ Equity** |
Div YLD |
|---|---|---|---|---|---|---|---|
| 7 | 27 | 0.9 | 4 | 75% | 14% | 33% | 1% |
* Equity / Total Assets, ** Total Liabilities / Equity
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