KLG Systel Ltd. POWERed Growth Ahead

No. of equity shares – 12,624,600
Promoter holding – 28.60 %
General Public holding – 36.69%

Market Cap – 214 Cr
Book Value – Rs. 155
Reserves – Rs. 227 Cr
EPS (Rs) – Rs. 26.37
Bonus – 1:1 (27-01-06)

52 week high/low – Rs. 471.25/Rs. 47.40
CMP – Rs. 169

KLG Systel Ltd provides Solutions for Engineering & Construction, Infrastructure, Energy (Oil/Gas/Power), Manufacturing, and a host of Industries and Government Departments. KLG Systel is one of the very few companies in this space with ISO 9001 certification for design, development, supply, support and service of application software.

Business:

KLG Systel Ltd. is an India-based company that provides support and information technology (IT) enablement to Top 500 Indian companies (both from the government & private sector) and the Indian arms of Fortune 500 companies. Its major service offerings include deployment of software solutions for enterprise project management, enterprise project management office consulting, program management and enterprise portfolio management solutions.
The Company operates in two sectors: Business Life Cycle Solutions and Power System Solutions.
Business Life Cycle Solutions includes Computational Engineering and Sciences, Enterprise Project Management, Automation and Manufacturing, and Enterprise Business.
Power System Solutions includes Distribution Management Solutions, Revenue Management Operations, Engineering Procurement Construction, Utility Distribution Franchising and Demand Response.

Growth driver:

The new government at centre is bullish on rural development and plans to spend more on different rural development schemes. This will be to enhance rural & urban infrastructure for which KLG is providing software solutions & it will definitely be benefited from this.

KLG has evolved as one of the key players in the Indian Power Industry enabling the ailing utilities to understand, rectify and meet the challenges of the complex power transmission and distribution system. KLG has several Intellectual Property Rights to its credit which have been developed indigenously with research and development initiatives taken by the Company. Its products, SG-61, Vidushi and Connectgaia are path breaking achievements of the Company.
Restructured Accelerated Power Development and Reforms Program (R-APDRP) scheme of Government of India is focused on establishment of baseline data & reduction of Aggregated Technical & Terminal (AT&C) losses to 15% through strengthening & up-gradation of sub-transmission & distribution network & adoption of IT. The total fund allocated to the scheme is Rs. 50,000 Cr.

For the implementation of R-ADRP, KLG Systel Ltd has been empanelled as an IT Implementation Agency for three roles, System Integrator (SI), GIS Solution Provider (GSP) and Meter Data Acquisition Solution Provider (MDASP).

Under this, KLG’s Power System Solutions (PSS) Division has been awarded many orders from various SEBs for the up-gradation & implementation of power systems such as - orders of Rs 40 Cr (approx.) from Punjab State Electricity Board (PSEB) for EPC project on turnkey basis; order of Rs 8.36 Cr from West Bengal State Electricity Distribution Company Ltd for the billing software and services for nearly 3.64 lacs consumers; orders of Rs 132 Cr from Punjab State Electricity Board (PSEB)under Rajiv Gandhi Gramin Vidyutikaran Yojna for design, engineering, erection and commissioning of 11 KV lines, 25 KVA substations and release of around 1.48 lacs new connections to Below Poverty Line (BPL) households. There will be many more orders bagged by the company due to its expertise in executing these projects.

Financials:

KLG Systel’s equity base is very small around Rs. 11.76 Cr whereas the reserves are Rs 170 Cr. Thus the free reserve per share comes to around Rs. 144 whereas it is currently ruling at a price of Rs. 170.

The recent performance, for the fiscal year ended 31 March 2009, KLG Systel Ltd.'s revenues were Rs 235 Cr (Rs. 272 Cr) Net Profit decreased 37% to RS 33.37 Cr (Rs. 52 Cr) is not very positive, however company has given 28% Dividend (Rs. 2.80 per share) & going forward, company is going to receive many more orders from the GOI under various development schemes. Its proposed state - of - the – art, Automatic Meter Reading (AMR) for the utility business manufacturing plant at Davni, near Baddi in Himachal Pradesh, with installed capacity of 25,000 units per month will be operational by third quarter of the year 2009 which will be adding revenues from Q4-09.

Valuation:

The company’s earning per share (EPS) is Rs 26 for FY ’09.
At the current price level of Rs. 170, the price-earning (P/E) multiple works to be around 5. The industry P/E is around 15. Even if we do not give that P/E & consider it around 10-12, then also there is good upside potential for the price. Its dividend yield comes to around 1.64. Secondly, it is one of the earliest entrants in the power sector which is going to see a great transformation towards the technology oriented power systems, KLG can hugely benefit out of it as explained earlier. So Investors with a long term horizon can consider buying this stock.