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Monday, March 21, 2011

Geodesic-the next multibagger like Onmobile?

What drew me towards this company is NOT any stock screen/analyst report(very few of them actually!) but its quarterly financial results press release(available here). While other companies use this as a statutory compliance tool, Geodesic uses it as a marketing tool to state two entire pages of achievements during the quarter. This does reflect the company's innovative and upbeat approach, and that prompted me to look further. And a perusal of their annual reports/other documents only stoked my interest further. Consider this
  1.  NOT a geographic information systems company:- The name certainly evokes that sentiment in me(and I suspect I'm not alone). They are into the following businesses 
    1. Communication/collaboration:- like Cisco
    2. Mobile VAS:- under the Mundu brand
    3. Electronic computing platform:- They have developed Linux based handheld device GeoAmida, which is used in several E-governance projects. The UID scheme may boost these sales, as may the increasing IT usage in both State/Central projects
    4. Financial products/services:- Like most other IT Cos
    5. Content:- Chandamama brand but also they serve as content aggregators.
  2. Attrition rate well under 5% for the past 6 years-a commendable feat in any industry specially IT.
  3. Berkshire Hathway approach to managing subsidiaries- operate as an aggregation of separately-managed small and medium- sized businesses, most of whose decision-making occurs at the operating
    level. They would rather suffer visible costs maybe of a few bad decisions than incur invisible costs that come from decisions made too slowly – or not at all.
  4. Infosys style conservativeness with cash;- They prefer security to high returns on cash/investments.
  5. Transparent tax planning:-The company discloses(Pg 29 FY10 AR) that Geodesic Holdings Limited (GHL), Mauritius  primarily acts as the Holding Company for all subsidiaries of the Company outside of India.This is to streamline the processing and operations of outside subsidiaries!! 
  6. Owners of iconic brand Chandamama:- This mythological based magazine is expected to break even in FY11, and has good content library value
  7. Marquee client list:- They have vastly successful client relationships(Apple/HDFC etc) and their Ipad app Mundu TV is the No1app on Apple India store.

But every rose has its thorns. The negatives:-
  1.  Their tax exemption expired in Mar-11(like for all other IT companies in EOUs), but given the export dependence(98%+ sales) , their effective tax rate may still be lower.
  2. Non transparent segment reporting:- Despite the plethora of business activity description and their 'hands off' approach to operating subsidiaries, they have not chosen to disclose any breakup. This is counter productive in terms of valuations because they do not get the rich valuations that Onmobile gets. This incidentally, is the biggest hurdle to fairly valuing this company.
  3.  Investor Relations seems a bit weak
    1. Have stopped posting the conference call transcripts after 4Q'10. I do not know whether they even hold it an analyst conference call or not.
    2.  The analyst research reports(downloadable on the investor relations homepage) are quite old, indicating that possibly the coverage on this stock has ceased.
    3. They had to send a corrigenda to the FY-10 Annual Report(albeit minor detail) which does not reflect favorably on the financial reporting process. 
To my mind, the EV(Rs 590Cr Debt+Rs 730Cr Equity) of Rs 1380 crore does not do justice to the company's growth prospects, management and brand. The share is trading at just over book value(Rs 80/share) which is surprising-but maybe due to the non disclosure of segments. But why my comparison with Onmobile? Even Onmobile had a strong content base, good management and initial analyst apathy. Also, Geodesic's mobile apps foray(and apparent success) does make it comparable(though we do not know to what extent). Given the superior operating parameters of Geodesic(sales, margins) v/s Onmobile, the valuation gap looks to only narrow here on.


To my mind, upside triggers for this stock are:-
  1.  Aadhar Project:- This may boost the demand for GeoAmida, as would other E-governance projects
  2. Apple Store launches:- If they can continue the run of successful apps, market may reward them.
  3. Improved reporting/visibility:- If the conference calls are held more often AND segment details published, valuations may improve.
  4. Possible M&A-given the very high FII holding, the stock is ripe for a hostile acquisition. Of course, the high FII holding is also a chance to pick up the stock at fire sale prices if FIIs start exiting India en masse. The promoter holding of 20% is quite low....
    Ownership Pattern

7 comments:

sendrk said...

The book value was 85 on 31.3.2010. On 31.3.2011, the book value is about 120

Anandh Sundar said...

@Sendrk..thanks for the comment. Yes, I did not include the interim profits(till Dec-10) in the share price because I did not know whether they will take any fourth quarter provisions and have a blood bath!

Now it does seem even more attractive. Cannot figure out why this decline, with a cash EPS of 29 and EPS of 27(accrual!)

sendrk said...

Anandh, most large retail holders have been trying to find the solution, but basically the management has to be more concerned about there being a reasonable market price. At present, people are sitting on astronomical losses but the co. management has been mostly in the hands off mode. You may find better visibility on http://www.geoinvestors.blogspot.com/ , but that is a kind of dedicated blog for the problems (poor market price) of the stock.

nitish said...
This comment has been removed by the author.
nitish said...

I am an investor and yet i want to think like the devil. Indulge me. Mundu TV; Who has verified the claim that it is the best app on Apple store? Over 1 year a stagnation of 8 channels how can you even believe that? Chandamama; Who in your circle reads chandamama? How much volume can chandamama generat by selling for Rs 240 a year? Try out their call center service, you will discover how much faith they have put in this venture. Plus, now you see the portal with google ads. Duh!
Geoamida: Is it any competition to android apps and iphone apps? Visit alibaba.com and you will find that geoamida is no great show and it has huge competition.
Mundu SMS: Commodity busines running in every nook and corner now.
Mundu IM: How much IM do you use now? Now with fb or gtalk or skpe. Do you need Mundu IM? Do corporates need to buy mUndu IM services? I don't think so
Spokn: They are working at it but they are too late. Skype, Gtalk and facebook's soonto launch in browser video chat, webex, teamviewer, goto meeting. Does spokn have a chance with such poor marketing?
Filmorbit: When are they going to shut that stupid thing and give everyone freedom to try for another more convincing job.
fn.geodesic.com: Not sure how big this can become but Angel, Motilal and alchemy all laying off people....
And now they laucnh Carrom MP. They have become a pack of jokers with very good degrees for sure (IISc, IITs etc.)
I don't know why am i still holding on to my shares and where these guys are cooking up their numbers from. Check out facebook, Does Kiran have a connection to Raju?

Anonymous said...

Anand first of all congrats on a really super blog. This really is an amazing learning experience to go throgh whatever you have put up here.
With regard to Geodesic there are a few specific concerns especially the FCCB they raised and end utilization of the same alongwith the realization of the same.
Please go through the following to get further insights
1)www.geoinvestors.blogspot.com
2)http://www.theequitydesk.com/forum/forum_posts.asp?TID=502&PN=4 - Thread on equitydesk on Geodesic that highlighted some issues
3)http://stage.geodesic.com/files/investor/financial/reports/quarterly/transcript/Geodesic-Earnings-edited_Aug30-2011.pdf - Geodesic conference call - please analyze their grilling by one analyst Mr Shah
Basically there are concerns about their financial figures and this is reflected in the stock price.
Once again congrats on super work.

Anandh Sundar said...

@Anonymous-thanks for the praise. The transcript was quite interesting and I hope there are more analysts like Mr Shah who bother to probe the company in depth. Next time, do consider using an identity so that we can be in touch!