Accel Frontline - Rs.61

Established in 1991, Accel Frontline Ltd. (AFL) is an IT Services provider specialising in consulting, infrastructure, applications, outsourcing and support services. It has a strategic alliance with the reputed Singapore based Frontline Technologies Corporation Ltd. The company has structured its business by carving out the following four strategic business units (SBUs):

IT Infrastructure Solutions: More than 50% of its revenue comes from this segment, which offers its customers the chance assess, build, deploy and optimise IT Infrastructure for mission critical applications. The solutions include system integration of data centres, networks, storage management, disaster recovery and security.

Infrastructure Management Services: With 30% revenue contribution, this SBU provides IT infrastructure maintenance, facilities management services, application management services and IT outsourcing.

Enterprise Software Solutions: This unit contributes nearly 10% of its revenue and specialises in providing ERP consulting, application management, outsourced product development and industry specific solutions with software products like ‘Accel EMS’ for the manufacturing domain, ‘Prodigy’ and ‘Accel UMS’ for the Education domain, ‘Accel HealthSPACE’ for the Healthcare domain and ‘Best B’ for the Banking domain.

Business Process Outsourcing Services: Although its BPO division generates only 10% revenue, it has an unique model under which it provides warranty outsourcing, logistics management, repair depot and technical helpdesk services to major IT and telecom product companies.

Presently, AFL operates out of its head office, 8 regional offices, 22 area/branch offices and 80 service locations. It has state-of-the-art software development centres in Chennai and Kochi. Its BPO division operates at 39 locations with its head office in Chennai and presence in other major centres and the metropolitan cities. It also has two subsidiary offices in Singapore and Dubai. Besides, the company is a certified partner for Sun Microsystems, Microsoft, IBM and Oracle to deliver applications on their platforms and provide support for such applications. Notably, AFL’s business processes conform to ISO 9001:2000, SEI CMMI Level 5 and BS 15000 standards. With a prestigious client list of over 2000 corporates and having presence in seven countries, AFL is now planning to tap the Far East, Middle East, and African countries apart from increasing its market penetration in USA.

Couple of months back, AFL acquired the banking solutions division of a Chennai based software company, which specializes in software products for banking applications and implementation and migration services for Core Banking software in India, Middle East and Africa region. Recently, the company also entered into a strategic partnership with Seagate Technology, USA, to provide professional data recovery services through its extensive network. More importantly, a few days back it was awarded a prestigious contract by the Centre for Railway Information Services for installing and maintaining smart card based Automatic Ticket Vending Machines (ATVMs) across Western and Central railway stations including the suburban stations of Mumbai. On a standalone basis, it is expected to register total revenue and PAT of Rs.200 cr. and Rs.15 cr. respectively for FY07, which can improve to Rs.250 cr. and Rs.20 cr. for FY08. This works out to an EPS of Rs.7 & Rs.9 for FY07 and FY08 respectively. Hence at a forward P/E of less than 7 and at its current market cap of Rs.135 cr., the scrip is trading fairly cheap. Secondly, it’s trading at 20% discount to its issue price of Rs.75. Investors are strongly recommended to buy it at current levels with a price target of Rs.100 in a year.