Information technology has changed transformed the economy as well as the lifestyle of people, forcing even the governments to adopt it. E-governance has the potential to serve people in the remotest places. Though e-governing system is at its initial stage, it has thrown open immense opportunities for companies like Tera Software Ltd (TSL), which is an active player in the e-governance business.
TSL, a Hyderabad-based company, is one of the early entrants in the segment. The company has working experience with six state governments handling projects like land registration, education, transportation and others.
TSL generates 80% of its revenue from e-governance projects alone. The balance 20% comes from system integration and networking, ITES and consulting services. TSL has a healthy order book worth of Rs 235 crore for the projects of over 5 years. Apart from egovernance, TSL has a land bank of 20 acres in the outskirts of Hyderabad, which it plans to demerge into a special joint venture for development.
Business E-governance is the key business of TSL. E-governance system is used by governments to simplify common man’s needs. E-governance is part of the UPA government’s common minimum programme and is being promoted on a massive scale. Government focus on e-governance can open a flood gate of opportunities for entities providing such services. TSL has set up niche value in this segment with its ac curate and time bound service. Currently, TSL is working on eight different e-governing projects like AP school edu cation project, Karnataka land registration project; Maharashtra sales tax department project, transport project in AP & Kerala and Maharashtra and Karnataka electricity bill distribution contract. The government employs the BOOT model by which the company puts in the initial capex for the infrastructure, manage and provide the services on behalf of the government for a fee. In such projects, TSL provides hardware and software support along with manpower supply. The capex for a segment of e-governance is around 1/5th of total project cost.
The revenue model in e-governance is based on user fees from citizens which can be anywhere between Rs 1215 crore per annum for a simple e-registration process, says T Gopichand, vice chairman & MD of the company.
Moreover, every five years, a lot of restructuring is required to accommo date new changes. This gives continuity to the revenue model. E-governance market is expected to be over Rs 20,000 crore over the next five years.
Apart from e-governance, TSL provides total turn key solution which includes LAN, WAN, mobile computing, bio metrics and kiosks etc. for corporate, banks and others. The company has set up a BPO at Hyderabad that provides all inbound and out bound solutions. It is also an active player in consultancy business.
Real estate foray TSL had acquired 20 acres of land from P&G in 2004 on the outskirts of Hyderabad at Galilpur. TSL plans to demerge this land into another company and to rope in a developer as a joint venture partner to develop 2mn
sq ft of residential project. The estimated land value is around Rs 350 million. The process of de merging is expected to be completed in the next 3-4 months.
Investment rationale The government has decided to spend 2-3% of budget on IT services.
Under the NEGP (The National E-Governance Plan) the government has decided to implement IT services in 360 departments spread across 35 states.
This plan will require efforts of 70,000 man-years. For this purpose State Wide Area Network (SWAN) would be set up at the cost of Rs 3,300 crore. At the same time, the state governments are framing their own strategies to comply with central government’s policy This buzzing plan offers immense .
opportunity for companies like TSL, which has an existing track record in this sector.
TSL’s revenue comes from governments. While the risk of bad debts is low in such contracts, the collection period is as high as 6-9 months. E-governance projects generally last for more than one year (3-5 years) and needs restructuring to accommodate changes which helps the company to sustain its growth. TSL is expanding its services in new states like Gujarat, Punjab, Bihar, Jharkhand and Nagaland.
Almost 100% of company’s revenue comes from domestic market and hence insulated from rupee fluctuation. Real estate foray is expected to unlock a lot of value to the shareholders.
Risk and constraints E-governance projects, due to its viability, are attracting all major players in IT segment, which results in high competition. TCS, CMS and 3I-infotech are major players in this segment. Being a government-based project, the orders do not materialise as per expectations, says Gopichand. Moreover, the sales cycle is also as long as 12-18 months. Political powershifts is another concern which can delay the projections and the project as whole.
Valuations In FY07, the company has shown robust growth of 71% and 91% in the topline and bottomline, respectively.
We expect the growth to continue at a consistent rate of 50%. At the current market price of Rs 87.75, the stock is available at 6.3x its FY08 earnings.
Conclusion E-governance is the most preferred way to serve people with low cost and a high degree of transparency and hence the governments are keen to implement it. One can go for long term investment on this stock. Investors can take a value bet and hold for further developments in the real estate front.
Popularity: 1% [?]