Hyundai Autoever Joint Venture In Indonesia Will Expand Global Footprint

Key Takeaways

• Expansion through a joint venture and new deals in digital sectors boosts global footprint and potential revenue growth.
  
• Strong growth in Consumer Tech, Enterprise, and IoT sectors supports margin and earnings improvement through upselling and cross-selling initiatives.
  
• Heavy reliance on government projects poses volatility risks, pressuring margins and challenging the attainment of projected growth and profitability targets.

Catalysts

Provides digital mapping, geospatial software, and location-based Internet of Things (ToT) technology solutions in India.

• The joint venture with Hyundai Autoever in Indonesia is operational, marking an important step in expanding the company’s global footprint, potentially driving future revenue growth.
  
• The company is actively pursuing the Consumer Tech & Enterprise business, which witnessed a significant 39% revenue surge year-on-year, suggesting strong growth potential in high-demand sectors that could positively impact future earnings.
  
• Major deal wins with a global social media network and expansion into the quick commerce sector highlight the company's potential to accelerate revenue growth by capturing larger market share in emerging digital sectors.
  
• Strengthened customer relationships through upselling and cross-selling initiatives are expected to increase revenue and improve net margins by maximizing existing client base value.
  
• The automotive sector partnerships, along with progress in IoT-led businesses with higher margin subscription revenues, indicate potential for both revenue and margin improvement, supporting overall earnings growth.

C. E. Info Systems Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming C. E. Info Systems's revenue will grow by 31.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.0% today to 32.8% in 3 years time.
• Analysts expect earnings to reach ₹3.2 billion (and earnings per share of ₹58.72) by about March 2028, up from ₹1.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 55.5x on those 2028 earnings, down from 64.2x today. This future PE is greater than the current PE for the IN Software industry at 27.8x.
• Analysts expect the number of shares outstanding to grow by 0.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.47%, as per the Simply Wall St company report.

C. E. Info Systems Future Earnings Per Share Growth

Risks

• The reliance on one-time government projects for increased revenue this quarter could imply potential volatility and unsustainability in revenue growth if similar projects do not materialize consistently in the future. This poses a risk to maintaining stable revenue growth.
  
• The noted increase in outsourcing expenses tied to government projects suggests potential margin pressure, as such expenses are not recurring revenue streams and can lower profit margins if similar high-revenue projects are not secured. This impacts net margins negatively.
  
• The decline in IoT-led hardware sales and the postponement of anticipated large contracts into the next financial year presents potential risk to revenue inflow and growth, indicating short-term gaps in revenue realization. This impacts overall revenue negatively.
  
• The company’s confidence in maintaining a 25% yearly growth may be challenged by the lower-than-anticipated growth rate in the first 9 months of FY '25, which was only 17%. This reflects potential risks in achieving the projected annual growth target, impacting future earnings projections.
  
• Increased involvement in lower-margin government projects may lead to a sustained decrease in overall EBITDA margins, which have already dropped from 42% to 38% year-over-year. This impacts the company’s profitability and net margins.

Valuation

• The analysts have a consensus price target of ₹2147.5 for C. E. Info Systems based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹2830.0, and the most bearish reporting a price target of just ₹1445.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹9.7 billion, earnings will come to ₹3.2 billion, and it would be trading on a PE ratio of 55.5x, assuming you use a discount rate of 14.5%.
• Given the current share price of ₹1611.75, the analyst price target of ₹2147.5 is 24.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.