Buy This Multibagger Small Cap IT Stock For Target Price Of Rs 1,310, Reported 6.4% QoQ Revenue

Monarch Networth Capital, a leading brokerage firm, has recently published a report on Saksoft Limited, where the brokerage recommended investors 'buy' the stock of the company for a target price of Rs 1,310 apiece. According to the brokerage's estimated target price, investors buying the stock of the company at the current market price could expect a potential gain of 27%. Saksoft Ltd is a small-cap IT Software Sector company with a market capitalization of Rs 1,090 crore.

Saksoft's strong revenue growth - both YoY & QoQ - was attributable to its focused approach on high-growth verticals and ramp-up in deals won last year. Supply-side issues continue to dampen margin profile marginally offset by lower sub-con costs and opex.

Stock Outlook

The current market price of the stock is Rs 1,035 apiece. Its 52-week low is Rs 686.95 apiece and the 52 week high is Rs 1,175 apiece. It is currently trading at Rs 348.05 apiece above the 52-week low level and Rs 140 below the 52 week high level, respectively.

Returns on Investment

Saksoft stock in the past 1 week, gave a negative return of 3.48%, whereas, in the past 1 and 3 months, it gave positive returns of 3.23% and 30.23%, respectively. Over the past 1 year, the stock gave a positive return of 34.18%. Whereas, in the past 3 and 5 years, the stock gave multibagger returns of 296.58% and 443.53%, respectively.

Strong topline performance

Saksoft reported revenue of Rs1.48bn; growth of 6.4% QoQ (+44.9% YoY) driven by its ability to carve a larger share of existing clients (Top 10 grew to 63% vs 59% in Q4FY22) and ramp-up in key deals. The company continues to add new USD0.5mn deals coupled with focus on mining key accounts; evidenced by movement of clients to larger buckets. Saksoft's niche capabilities within select sectors give it an edge over generic players, as evidenced by winning deals against larger players. The confluence of domain expertise, technological capabilities and established track record should help the company drive revenue growth of 15.5% CAGR during FY22-24E, as focus verticals are at an inflection point driven by increasing tech spends. The management believes it is on track for its stated USD100mn revenue target by FY25E.

Higher employee costs result in margin contraction

EBITDA margin contracted by ~74bps to 15.2% vs 15.9% in Q4FY22 and 15.2% in Q1FY22 driven by higher employee costs resultant of appraisal cycle and addition of new employees (~100 employees; could add ~150 employees during FY23E). "We had highlighted in our previous note that the management would prioritise revenue growth over margins and we believe it should continue to do so; however, sustainable range for the same should be 15-18% in the medium term," brokerage said.

Focused approach paying off, Buy for a target price of Rs 1,310

Commenting on the stock, the brokerage said, "We continue to value the company at 16x PE multiple on FY24E earnings and arrive at our fair value of Rs 1,310. Currently, it is trading at an attractive 13.6x on FY24E EPS. References + history/ prior experience + capabilities are driving customers to go with smaller players that tend to be more adaptable while Saksoft's technology expertise, cloud solutions, and advanced business intelligence along with proprietary frameworks/accelerator enabling shorten delivery timelines could assist it in reaching its stated revenue target."

According to the brokerage, the key risks would be "Cuts in IT spends, changing macros and lower-growth in focus areas."

Disclaimer

The stock has been picked from the brokerage report of Monarch Networth Capital. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.