Datamatics Global Services Ltd

Datamatics Global Services Ltd

Datamatics Technologies (DTL) has been promoted by Dr Lalit S Kanodia and Mrs Asha S Kanodia. Dr Kanodia 62 chairman received his B. Tech (Hons) from IIT Mumbai. He completed his MBA and then Ph.D. in Management from the Massachusetts Institute of Technology US. He taught statistical decision theory at MIT during 1964-1965. He is an international consultant and has extensively traveled worldwide for over three decades. He has held the post of consultant to the Ford Motor Co and Arthur. D. Little US. Prior to founding the Datamatics Group Dr. Kanodia worked with Tata Consultancy Services and held overall charge of the organization during the period 1968 to 1969. DTL gets about 49% of its business from top five clients. Though this is lower compared to 72% and 63% in FY 2002 and FY 2003 respectively the contribution from a single client has been on the rise. Cadmus the company's top client which accounted for 19% and 17% of the revenues in FY 2002 and FY 2003 respectively was responsible for a phenomenal 26% rise in revenues for the nine months ended December 2003. The other four are Ford Pearsol Daimler Chrysler and Reedelservier. More than 90% of the sales come from the US. Dependence on a few all from dollar country is a matter of serious concern.In June 2003 DTL formed a joint venture with Cadmus (its largest client) called KGL. DTL holds only 20% stake in KGL with Cadmus holding the balance 80%. The transition process of transferring the existing business to and doing new business through the JV is already on on a monthly basis and by FY 2005 the management expects the contribution of Cadmus to DTL's consolidated sales to fall to just 8-10%. As Cadmus is into scientific technical and medical publishing business (STMP) only the STMP business that it or DTL gets will go to the JV. Notably Cadmus is the market leader in STMP business and commands a huge 35% market share in the US. The management feels that the 20% stake in the business that it gets through the JV would be much more than what DTL would have got had the company gone ahead on its own to garner the STMP business. However in the short term this transfer of business is bound to affect the company's financials. Interestingly Cadmus has the right to acquire the balance 20% of the stake at its own will in or after June 2006. In April 2004 DTL came out with an Initial Public Offering (IPO) of 10300000 equity shares comprising a fresh issue of 8500000 equity shares and offer for sale by promoters of 1800000 equity shares. Post-issue the promoters' stake will fall from 92.83% to 68.95%. DTL's price band of Rs 101 to Rs 110 discounts the nine-month annualised EPS of Rs 6.8 on post-issue equity in the range of 14.9 to 16.2 times.The only comparable company is e-Serve International which is engaged in providing information technology-enabled services to Citigroup entities globally. e-Serve in which Citigroup holds over 44% equity stake is more than three times the size of DTL and has a much more assured business model.