Capital Structure  

Authorised Capital: 15,000,000 equity shares of Rs 10 each 
Equity shares outstanding prior to issue: 9,805,900 equity shares of Rs 10 each 
Equity shares outstanding after the issue: 14,180,950 to 13,490,161 equity shares of Rs 10 each at the lower and upper band respectively  

Omnitech InfoSolutions was incorporated in Jan 1990 as Omnitech Business Machines and subsequently renamed to Omnitech Infosolutions in April 2001. The company provides infrastructure management, application management and software testing services to various corporates. The company is headquartered in Mumbai with branches in Bangalore and Delhi . The company has two joint ventures in Bahrain and a subsidiary in Delaware . It’s employee strength is 275.

Objectives of the issue  

1. Acquisition(s) / strategic investments and/or to alternatively set up new technology center

2. Setting up of overseas offices

3. Enhancement of our existing facilities  

Key Investment Rationale    

Unique delivery models  
Omnitech provides its services through unique delivery models in the infrastructure management space like build operate and transfer (BOT), software as a service (SaaS) and a combination of onsite and offshore services. We believe the BOT model is unique to the company in the infrastructure space and could be a key deal clincher.  

Successfully integration of acquisition 
The company had acquired “EdVenture Systems Inc” in 2006 thereby acquiring capabilities in software testing. The company has successfully integrated this acquisition and we believe this bodes well for the company in its endeavor to acquire companies going forward.  

Indigenous frameworks, products to reduce costs 
Omnitech has developed its own framework solutions and products like Omni Manage IT, Omni Audit, Omni Transport and Omni Monitor, which we believe would result in considerable savings in delivery costs. The cost advantage would come from not having to buy licenses and products from other vendors.  

Infrastructure management a highly scalable business 
The business by nature is very scalable and has a high degree of operating leverage. This would translate into expanding margins going forward and would only depend on the pace at which the company is able to ramp up customers.  

Key Concerns

·          The company plans to make an acquisition and would be exposed to the risks that come with an acquisition.  

Financials  

Omnitech has recorded revenue growth at a CAGR of 14.5% over the past five years. The company recorded a whopping 43.5% growth in FY07 to Rs 77.63 crore. Though the growth is impressive in FY07, this has been accompanied by a steady growth in debtors over the past five years. Debtor days have grown from 46 days in FY03 to 119 days in FY07. The effective tax rate as a percentage to PBT has also declined steadily from 40.4% in FY03 to 9.7% in FY07. The management attributes this to a higher EBIDTA contribution from software export sales, which derive higher margins. EBIDTA margins have grown from 6% in FY03 to 23.1% in FY07.  

Valuations  

At the issue price of Rs 90 to Rs 105, the stock discounts its FY07 earnings of Rs 8.5 and Rs 8.9 by 10.5x and 11.7x at the lower and upper band respectively post dilution. We believe the company would be fairly valued at this price and there are other picks available in the market with similar valuations and revenues almost 10 times the company’s. We would avoid the scrip on the basis of our valuation. However, considering the small size of the issue, one could subscribe for listing gains.