CyberTech Systems and Software Limited: Strong Order Book and Investment in Digital Marketing Should Lend Support

Summary

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• US business continues to be a major contributor, making up 95% of operating revenue of CyberTech Systems and Software Limited.
• Focus on high-margin applications and partnerships with major global IT players should help achieve targeted growth levels.
• Cash balance exceeds total debt by a significant margin, hinting that stock should form part of portfolio.

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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 pipeline and order book: CyberTech Systems and Software Limited came out with its 2Q and 1H results for fiscal year 2021 and it seems like the company is optimistic for next two quarters of fiscal 2021. Covid-19 epidemic impacted both US and Indian businesses, but the company is finally seeing some mitigating treatments. Over course of 1H21, results were strong despite being a slow-paced demand. Revenue of INR614 million for 1H21 exhibited 6% year-over-year growth. Net profit of INR89 million saw a growth of 17% year-over-year. It clearly mentioned that upcoming 2 quarters will see several new projects. Pipeline and order book is strong enough and it has substantial long-term strategic contracts in hand. Number of total active clients as of 30th September was 46. During 2Q, revenue from technology sector saw strong momentum and made a contribution of 73% of operating revenue. Geographically, US business was a major contributor as this business made 95% of operating revenue.
• Investment in digital marketing continues: Spatialitics products continued to gain traction. Similar to previous quarter, another significant US healthcare system subscribed to HIPAA-Complaint Geocoder and Spatialitics Health App suite. One of existing Water Utility customers subscribed to new cloud-based Asset Notification app. The company continued to invest in digital marketing and demand generation programs. CyberTech Systems and Software Limited should be able to maintain margin profile.
• 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. Operating revenue for 2Q21 was INR273.9 million in comparison to INR283.2 million in 2Q20. EBITDA was INR69.5 million for 2Q21 as compared to INR78.2 million in 2Q20.
• 1H21 saw year-over-year improvement: CyberTech Systems and Software Limited saw operating revenue of INR577.5 million in comparison to INR544.5 million in 1H20, exhibiting 6.1% year-over-year growth. Total revenue was INR613.6 million in comparison to INR577.2 million in 1H20. EBITDA of the company was INR156.5 million for 1H21, while margin was 25.5%.
• Industry overview: In recent fiscal year, global economy saw significant slowdown primarily because of prolonged trade disputes, uncertainty around Brexit, 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. Global economists opine that all efforts should be made to take care of trade and technology tensions while improvising multilateral rules-based trading system. Given tremendous uncertainty, significant joint support from fiscal and monetary policy should continue. Countries should also ensure proper fiscal accounting and transparency, and that monetary policy independence is not compromised.

Absurdly Cheap Valuations Means Go Long

CyberTech Systems and Software Limited has a total market cap of INR44,377.79 lakhs and a free float market cap of INR21,169.03 lakhs. Investors seem to be happy given stock’s significant increase over past one month ended January 1, 2021. Despite Indian economy going through a difficult phase, stock is up by ~89.5% between December 1, 2020-January 1, 2020. This magnificent growth exhibits that CyberTech Systems and Software Limited is being well-perceived by its investors and industry is seeing growth phase. The company bears ROE of 15.49%, with ROA of 10.52%. It has compounded its gross revenue at ~11.47% and EBITDA at ~28.37%. Taking into picture these numbers, it is fair to say that CyberTech Systems and Software Limited 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.

While stock has seen a significant rally in past one month to January 1, 2021, it still trades at lower valuation which favours going long. Stock of CyberTech Systems and Software Limited trades at ~41.81x of FY20 EPS, which is at a discount to sectoral average of ~46.52x. Lower valuations and focus on reinvestment of earnings makes it viable to be a part of portfolio.

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Exclusivity:

This article is exclusive to investoguru.

Stock Disclosures:

The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Author Disclosures:

This Article represents the Author's own personal views. The Author did not receive any compensation and do not have any business relationship with any of the companies mentioned in the Article.