Stock of this IT enabled services firm has zoomed over 100% in 7 weeks

Shares of Datamatics Global Services (DGSL) hit a new high of Rs 609.20, surging 12 per cent on the BSE in Monday’s intra-day trade. It surpassed its previous high of Rs 577.55, touched on June 5, 2023.

In past seven weeks, the stock price of this IT enabled services has more-than-doubled or zoomed 106 per cent after the company reported robust earnings for March quarter (Q4FY23). The management said it expects to see a sustained growth momentum for FY23- FY24, given a decent pipeline of opportunities. They are optimistic about the overall demand and confident of maintaining an overall revenue growth of 14 per cent to 15 per cent in FY24.

DGSL provides solutions for data driven businesses to enhance their productivity and customer experience. The company’s services can be bifurcated into three segments—digital operations, digital experience and digital technology. The company has also developed products in robotics process automation, advanced analytics, business intelligence, and automated fare collection.

DGSL is headquartered in Mumbai, with offices across North America, Europe, Australia and Asia, through its subsidiaries. DGSL’s customer base is diversified across various sectors, such as BFSI, manufacturing, hospitality, publishing, and international organisation, among others.

In terms of geographical footprint, US remains largest geography with 54 per cent of the company’s total business, followed by India at 27 per cent, rest of the world including UK and Europe at 19 per cent. The company’s top 5, 10 and 20 clients contributing to 24 per cent, 37 per cent and 52 per cent respectively.

DGSL had a remarkable Q4, with revenue up 32.9 per cent year-on-year (YoY) at Rs 416.30 crore and earnings before interest tax (EBIT) increasing by 78 per cent YoY at Rs 75.30 crore. The company’s profit after tax jumped 30.9 per cent YoY to Rs 59.70 crore.

This was the first quarter in which the company surpassed the Rs 400 crore revenue mark. This revenue growth was broad-based, driven by all three segments of Digital Operations, Digital Experiences, and Digital Technologies.

Despite the global economic situation, the company managed to maintain a healthy margin of 20.2 per cent, up 378 bps YoY. EBIT margins saw considerable improvement from 2.2 per cent to 9.1 per cent in Q4FY23 primarily due to renegotiated prices and tighter cost controls. In Q4FY23, Datamatics signed a total contract of about $20 million and added about 21 new customers.

The management further said that there's no impact on the demand outlook that remains equally robust, but one is seeing some softness in the US BFSI sector, and one is seeing some headwinds, particularly out of the US and Europe.

However, as far as Datamatics is concerned, the management is still seeing a very healthy pipeline. But they are being a bit cautious, because of the economic challenges that they're having, inflation and recession and things like that, it added.

The global BPM market is estimated to be $290 billion in 2023. The segments expected to witness the highest volume of new work in the next five years include industry-vertical oriented BPM, enterprise back-oce BPM and contact center.

ICRA have stable outlook on the DGCL’s instruments as the rating agency believes the company will continue to benefit from its established business profile, order book position and diverse customer base. ICRA expects DGSL’s financial profile to remain healthy over the near to medium term, given its strong balance sheet, order book in hand and steady earnings outlook.

ICRA expects the company to continue to scout for investment/ acquisition opportunities to support its inorganic growth initiatives. The impact, if any, of the same on DGSL’s credit and liquidity profile will depend on the ticket size of these investments/ acquisitions and their operational and financial synergies, ICRA said in its recent rationale.

Technical View

Bias: Positive

Target: Rs 650; Rs 672

Support: Rs 560

Resistance: Rs 617

The stock has been trading with a bullish bias since the breakout in late April 2023, above the Rs 310 resistance. Presently, the stock trades comfortably above the key moving averages.

Among the key momentum oscillators, the 14-day RSI (Relative Strength Index) is in the overbought zone; whereas others like the DI and MACD are fairly in favour of the bulls.

As per the monthly Fibonacci, the bias for the remainder of the month is likely to remain bullish as long as the stock holds above Rs 560-level. On the upside, stock needs to clear the hurdle at Rs 617, to open the upside potential target of Rs 650 and Rs 672.

(With inputs from Rex Cano)