>ALLIED DIGITAL SERVICES (ANAND RATHI)

Revenue visibility adequate; retain Buy

■ Visit takeaways. We estimate that Allied’s revenue and earnings target for FY10 is achievable. Business from the new tie-ups is expected to flow in from FY11. Our new target of Rs650 is at a
target PE of 7.5x (a 63% discount to Infosys’ current multiple). Retain a Buy.

■ Adequate revenue visibility. Allied has adequate revenue visibility, backed by its order book. The Solutions order book is Rs1.3bn, to be executed over the next six months. Services order
book is Rs1.2bn for India operations and US$60m for EPGS, executable over the next 12 to 15 months.

■ New tie-ups. Allied has tied up with an OEM from the USA to provide remote management for desktops, notebooks and servers sold by the OEM. The revenue stream from this business would start flowing from FY11.

■ Working capital. Debtor days of the standalone business, at 177, are high. Debtor days for EGS are a manageable three months. Allied is confident enough to bring them down in FY10.

■ Valuation. We assign Allied Digital a target multiple of 7.5x its FY11e EPS of Rs86.5, which is a 63% discount to Infosys (20x) and a 46% discount to HCL Tech (14x). This is also in line with other mid-cap IT companies. Based on the target PE of 7.5x FY11e EPS of Rs86.5, we arrive at a target price of Rs650.

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