Recommendation From IT Software Products Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

               
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DIVERSIFICATION GOOD FOR PORTFOLIO'S HEALTH 

HERE IS WHY 

Expansion in healthcare vertical 

Strong financial performance 

Attractive valuations 

Headquartered in Hyderabad, Virinchi is an information technology (IT) products and services company. The company is engaged in software development and research. Its segments include software products and services, IT-enabled services and infrastructure and real estate services. Virinchi offers various services, including application development, data warehousing, web services, enterprise application integration practice (EAI), testing services, maintenance and support practice, packaged development services, managed services and data centre services.

Virinchi Healthcare, a 100 per cent subsidiary of Virinchi, expanded its footprint into healthcare sector by setting up a 600-bed super specialty hospital in the upmarket Banjara Hills in Hyderabad at an investment of Rs300 crore. The company has raised Rs70 crore from Canara Bank-led consortium of lenders, while the remaining funds for the project were raised internally. 

The concentrated efforts and investments made to move up the value chain in its chosen market augurs well for the stock. Virinchi is witnessing significant traction from its existing customers and is able to generate healthy ‘new leads’ in the same market. 

As the revenues come from different geographies and in different currencies, currency risk remains high for the company. 

Looking at the attractive valuations and the opportunities ahead for the company backed by robust financial performance, the stock is a good buy in the current market situation. 

On the financial front, Virinchi Limited’s revenue increased 53.93 per cent to Rs38.76 crore in Q4FY17, as compared to the same period in the previous fiscal. The company’s PBIDT too increased 144.76 per cent to Rs5.14 crore in Q4FY17 on a yearly basis. However, the company’s net profit declined massively by 94.04 per cent to Rs0.05 crore in Q4FY17 on a yearly basis. 

On an annual basis, the company’s revenue increased by 39.04 per cent to Rs137.15 crore in FY17 from Rs98.64 crore in the previous fiscal. The company’s PBIDT stood at Rs21.28 crore in FY17, an increase of 158.56 per cent from Rs8.23 crore in the previous fiscal. The company’s net profit stood at Rs11.42 crore, up by over 173 per cent in FY17 from Rs4.18 crore in FY16. 

On the valuation front, the share price of Virinchi Limited is trading at a PE multiple of 9.94x as against its peers such as NIIT Technologies (13.24x), Polaris Consulting & Services (15.46x). The company’s PE multiple is higher as compared to industry PE multiple of 16.13x. The company’s ROE stood at 13.10 per cent and ROA at 6.12 per cent in FY17, while its total debt-to-equity ratio stood at 0.89x in FY17.