Buy Allied Digital Services Ltd. (ADSL)

Bokeh and Reflection

Image by ozgurmulazimoglu via Flickr

Target Price : Rs. 530 in 1 year

Allied Digital Services Ltd (ADSL) is a leading player in remote infrastructure management services (RIMS). According to a McKinsey-Nasscom report, the outsourcing of IMS to India is expected to grow at a CAGR of over 30% to USD13-15 billion by 2013. ADSL acquired an 80.5% stake in US-based En Pointe Global Solution Ltd (EGSL) at an equity valuation of ~USD24 million (total equity valuation ~USD30 million) in July 2008. The acquisition has expanded ADSLs reach into the US market as well as provided access to EGSLs several Fortune 1,000 clients. Due to its unique positioning, ADSL shall ride the high growth in the RIMS and solution market. This coupled with the sustainability of its margins will help it to grow its earnings at a CAGR of 19.6% (on adjusted earnings basis) over FY2009-11. Considering its 19.6% earnings CAGR and healthy return ratios, ADSL seems to be trading at attractive valuations of 7x FY2010 earnings estimate and 5.9x FY2011 earnings estimate.

This analysis is based on Sharekhan and India Infoline research reports. Both came out with a buy recommendation. Hence this week itself, this scrip may shoot up. Long term investors may accumulate when ever there is a correction. 


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