Expleo Solutions Limited (INE201K01015) : A German MNC in IT & Engineering software services CMP Rs 1025-1050 one year Target price Rs 1400+

 

Expleo Solutions Limited is part of Germany based Expleo Group which provides an end-to-end and integrated engineering, quality and management consulting services for digital transformation. Expleo Solutions Limited (Indian Listed Company) is the leading Business Assurance and Testing Specialist focusing exclusively for Treasury and Capital Markets, Retail, Private and Commercial Banking, Insurance, Cards & Payments and Asset Management , with Strong expertise on Quality Assurance, Performance Engineering, Cyber Security, RPA/IPA, Software Development (Low-code), DevOps, Data, Cloud Migration having clients across APAC, USA, Europe and Middle East

History Of Expleo Group :

ATEM Engineering was founded in Paris,France to develop Plants in the steel and Nuclear industries which became Assystem Technologies in 1995. SQS founded in Cologne Germany in 1982 acquired majority stake in Thinksoft global services Limited (Indian listed company) in 2013 and in 2015 & again acquired Management consultancy firm Trissential LLC in the USA in 2018 Assystem Technologies acquired Sterlong dynamics UK Based marine and aerospace engineering specialist also acquired UK based  Moorhouse management consultancy firm and also in the same year acquired SQS software AG. Thus Assystem technologies became the holding company which became Expleo group of companies in 2019.

Expleo Solutions Limited (Listed Company in India)

In a recent move Expleo group decided to merge four(4) unlisted Indian subsidiaries based at Pune & Banglore  into Expleo solutions Limited to Consolidate  all the businesses of Group in India in a Single entity to enhance business focus, improve synergies and focus on building a scalable enterprise to attract talent and skills. This is a major change which could transform and diversify Expleo solutions limited from a software testing specialist focused exclusively in financial sector to a software development, validation, verification, certification and engineering design services in the field of Aerospace, Automotive, Defense and Rail Transportation Domain. This amalgamation could result in rerating of stock going forward on the bourses.

Expleo solutions has been growing at 12-13% in India with 20-21 Revenue of approx 305 crores the unlisted subsidiaries which are going to merge will contribute another Rs 270 odd crores to the topline post merger and also grown by 12to 13% in last FY 20-21

A brief Look at financials pre amalgamation and post amalgamation.

Key Positives:

• 1.       MNC Parentage
• 2.       Promoter’s share to rise to 71.05% from current 56.17% post merger.
• 3.      Debt Free company
• 4.       ROCE >37%  ROE>25%. 
• 5.    At cmp Market cap approx 1600crores(post merger) approx 2.5 times of Revenue 
• 5.       Both listed and unlisted companies growth was between 12-13% over last year.
• 6.       Merger to add more business verticals and cost saving opportunities resulting in  improvement in  financial fundamentals.
• 7.       2 recently established subsidiaries are yet to contribute and huge potential to grow in future.
• 8.        Q-1 Results : Expleo solutions (Pre merger) achieved top line QOQ growth of 11% & EPS growth was 17%

 

Investment Rational:

Post merger there is a good opportunity for this MNC Company to utilize the synergies of different verticals more efficiently and transform Indian business from a software testing company to a diversified engineering services company. Management is targeting to grow top line at 15% + CAGR over next few years  at a conservative estimate of 15%  increase in EPS post merger next year which could result in EPS of Rs 66 for FY-21-22, a couple of % increase in PE Expansion due to rerating could take stock price to Rs 1400+ in one year. And over longer term it can still go higher. Technically after touching high of Rs 1360 was put in ASM category and since then it has been moving in range of Rs 1000-1100 and once it comes out of ASM it has potential to create new highs. Long term investors may buy at CMP of Rs 1025-1050 for a 40% returns in one year.

Happy investing.....

Disclosure : Invested 

This report is prepared based upon information and my understanding of company’s business & financials information available in various public forums such as company website, annual reports, concalls transcripts ,stock exchanges communications etc for knowledge sharing purpose. Readers are requested to validate the shared information & consult your financial advisor before taking any investment decision. I shall not be responsible for any loss or profit caused due to investment decision taken based on this report.