Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Aptech: Questionable valuations? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Jun 12, 2001

    Aptech: Questionable valuations?

    Aptech brought the months long speculation to an end by announcing the demerger for its education and software business into separate entities. Hexaware Technologies a software company promoted by Mr. Atul Nishar, (also the promoter of Aptech) will be merged into the software entity. Therefore, now there will be two listed entities, one into education and the other into software.

    According to the company’s management, the training and the software business were separated, as the both the businesses were different and to create currency for mergers and acquisitions. Hexaware and Aptech’s software wing will merge to create an entity with revenues of US$ 60 m (Rs 2.7 bn) with 1,150 employees. The rationale behind this merger was that the combined entity would have the advantage of size. Aptech claims that the combined entity, which is yet to be named, will be the 11th largest software exporter in the country. This would offer advantage as initial queries from overseas clients to Nasscom, are for the top 15 to 20 exporters in the countries.

    No doubt size would be an advantage. However, Aptech has to create a strong brand, as companies prefer to outsource projects to firms they have heard of and are known for quality.

    According to the terms of the demerger Aptech’s stock will be split in the ratio of 3:2 in favour of the training and education company (for 10 shares of Aptech, 6 will go to the training wing and 4 will go the software division). Considering Aptech’s price of Rs 104 the market cap is Rs 31bn. The valuation of the training business is therefore, Rs 18 bn (60%) and of the software division is around Rs 12 bn (40%). It is these valuations that have raised concerns. The valuation according to the company was done based on the assets of the divisions. However, on March 31st, 2001 the cash with the training division was Rs 360 m and that with the software division was Rs 2,130 m.

    (Rs m) Software Education Hexaware Combined (Sw
    and Hexaware)
    No of shares (no. in m) 12 18 10 22
    Revenues (FY01) 699 3,964 1,540 2,239
    Cash 2,130 360 59 2,189
    Mkt Cap @ Rs 104 1,260 1,890 1,037 2,297
    Net Profit (FY01) 161 654 270 431
    EPS 13 36 - 19
    P/E (assumed) 8 3 - 7
    Price - 108 - 137

    For the merger between Aptech software wing and Hexaware the ratio has been proposed at 1:3. For every 1 share of Aptech (face value of Rs 10) three share of Hexaware will be given (face value of Rs 10). Once the two companies are separated the education wing will have an equity base of Rs 181.5 m and the combined software division will have an equity base of Rs 221 m. Of this Rs 100 m worth of share will be given to Hexaware shareholders. Considering a market price of Rs 104 Hexaware has been approximately valued at a P/E of 4 times its FY01 earnings. Assuming a P/E multiple of 3x FY01 earnings for the education business and 5x for the software business the stock might be fully valued and there might be little scope for appreciation. It is interesting to note that day the announcement was made (8th of June, 2000) the price shot up to Rs 115 a gain of 10%. The stock has lost since then and is currently trading at Rs 107. The promoters stake in the education company will be limited to 26% but the stake in the software company will move up from 26% to 38%. Promoters’ holding in Hexaware is 50%.

    On the education front business has been under pressure due to slowdown in the US economy. The revenues from Asset International had shown a 17% drop in 1QFY02 due to drop in registrations. This trend is expected to continue till the hiring picks up in the US markets.

    At the current market price the stock is trading at a P/E 27x of its 1QFY02 annualised earnings.



    Equitymaster requests your view! Post a comment on "Aptech: Questionable valuations?". Click here!


    More Views on News

    Tech Mahindra: Our Revised View (Quarterly Results Update - Detailed)

    Aug 2, 2017

    A better than expected turnaround in performance results in a change in view.

    Wipro: A Decent Start to the Year (Quarterly Results Update - Detailed)

    Jul 27, 2017

    Digital services drive growth for Wipro in 1QFY18.

    Infosys: A Decent Start to FY18 (Quarterly Results Update - Detailed)

    Jul 14, 2017

    Infosys starts FY18 on an encouraging note with a stable performance.

    TCS: Currency Volatility Plays Spoilsport (Quarterly Results Update - Detailed)

    Jul 14, 2017

    TCS starts FY18 decently despite an adverse currency impact.

    HCL Tech: Ends FY17 on Expected Lines (Quarterly Results Update - Detailed)

    Jun 29, 2017

    Volvo partnership caps a good year for HCL Technologies.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Profitable Investment in the History of the World(Vivek Kaul's Diary)

    Aug 8, 2017

    'Yes, it looks like a bubble. And, yes, it's like buying a lottery ticket. But there's something happening that has never happened before. It's an evolutionary leap in money itself.'

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in HEXAWARE TECHNOLOGIES with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks



    Compare Company With Charts