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ABM Knowledgeware Ltd: Alpha Recommendation

Description:
ABM Knowledgeware Ltd., listed in Bombay Stock Exchange, is one of the few IT companies in India with exclusive focus on E-governance since 1998.

Within seven years of its foray into the E-governance space, ABM achieved the distinction of winning the prestigious award of “The Best Technical Organization in E-Governance” in India adjudged by the Ministry of Information and Communication Technology, Govt. of India and IIT Delhi.

ABM is one of the few companies in India which possesses IPRs and Trade Marks for its various proven and sustained E-Gov solutions. The journey of ABM is populated by several Milestones signifying growth of ABM in this very challenging and tough market segment.

Some of the core strengths of ABM that distinguishes it from many big or small IT companies operating in Indian market can be summarized as:

- Successful demonstration of Sustenance and Institutionalization of several large E-Gov projects
- Deep understanding of the focus Domains and functioning of Government in general
- Proven strategies/solutions for ensuring sustenance after “Go Live” of any E-Gov project.


KEY INVESTMENT HIGHLIGHTS

- E-Governance at Transactional Change
E-Governance in India has reached at the “Transactional” stage and providing various services to citizens, business and government organization, offered by Central Government agencies and different State Government departments. National e-Governance Plan (NeGP), initiated in 2006, attempts to make all Government services accessible to the common man in his locality, through Common Service Centers (CSC) being set up across India. As on April 2011, about 94,786 CSCs were operational while the scope is still humongous.

- Strong Entry Barriers & Customer Lock-in
BM operates in a segment with strong entry barriers. Since early 2000, ABM shifted its focus from supplying hardware to developing knowledge-based solutions/products for Govt. organizations. ABM has gained strong domain knowledge like no other company, and has thus been able to bring in administrative reforms in Govt. processes. ABMs products have received awards from various organizations and are amongst the only few solutions that have been adopted by both the National and state Govt. for recommendation and implementation across the country.

- Dealing with Govt., Not Everyone's Cup of Tea
Dealing with Govt. is not everyone's cup of tea. The Govt. works at its own pace and there's a lot of bureaucracy involved. ABM has been dealing with the Govt. organizations since late 1990s and has over the years mastered the art of negotiations with the Govt.

- Very Attractive Valuations
ABM is currently quoting at a market cap of Rs 74 crores, while the company holds approximately Rs 15 crore of cash balances. For FY 11, the company achieved a net profit of Rs 10.50 crores at 20% NPM, while the company has already achieved a net profit of Rs 8.77 crore for the half year ending FY 12. We believe the stock is quoting extremely cheap at 5 times FY 12 (E) earnings and approximately 1.5 times FY 12 (E) book value. Considering both the quality of the management and the company, ABM can easily command premium valuations over its peers in the long run.
 
Contents:
Table of Contents

1. ABM Knowledgeware Ltd – An introduction
- Exclusive focus on e-Governance
- Investment snapshot
- Key Investment Highlights

2. e-Governance – Industry Overview
- e-Governance in India at Transactional Stage
- What is National e-Governance Plan
- MCGM_Case Study
- KDMC_Case Study
- KDMC_Case Study – Project impact on the corporation
- Big C, Corruption? Gone down to a large extent
- Scope of e-Government

3. ABM Knowledgeware – Business Overview
- ABM – Verticals & Products
- Differentiating factor – ABM's focus on Products & Solutions
- ABM – Business and Revenue model
- ABM MAINET (KDMC) – Exclusive implementation right with ABM
- Scalability – Potential for replication across Maharashtra and other states

4. ABM Knowledgeware – Management Quality
- An Introduction to Mr. Prakash B. Rane, Managing Director
- Shareholding Pattern
- ABM – Consistent and increasing dividend payout
- Management's remuneration

5. ABM Knowledgeware – Financials
- Annual Performance – Consistent growth
- Quarterly Performance – Outstanding YOY growth
- Cash Flows – In line with reported earnings
- Pristine Balance sheet

6. Concerns
7. Conclusion
 
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