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HBJ Capital’s
10in3 Stock for
Mar’09
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Firm.
From the desk of CEO, HBJ Capital
Dear Investors,
Growth rate over 60-70% If there is any sector which is less impacted due to slowdown, it
since last 5 years; sustained is telecom or FMCG sector. Just imagine that when recession
earnings with bonus ; niche prolonged then even these sectors get hit and consumer look
player with good product for cost savings. In first place you can’t live without talking
base. This innovative product over the phone, it has become necessity now. Only thing
company can be a good which you can do is reduce the phone bill. In this case you
investment opportunity! will move towards low cost of communication like chat
client (IM) or VOIP etc
These are exciting time for software solution companies like Geodesic Information Systems, focused on information,
communication and entertainment (ICE) for mobile phones and computers.
Regards,
KHS, CEO, HBJ Capital, www.hbjcapital.com
#141, 5th Main, Girinagar, BSK 3rd Stage, Bangalore – 85
Call : 098867 36791 or Mail : Info@hbjcapital.com
Always look for latest trend, changes in
Look For New Emerging Sector which
the economy or the new policies
are not yet established or no large cap
created by Indian government for any
leader available from that space.
old/new sector.
2G – 3G – 4G
As we progress from 2G to 3G the ability to transfer and receive data along with voice improves
dramatically. We are getting better connectivity to the Internet with every new handset and a
shift in technology. Since the VoIP companies can provide the same services as the telecom
operator without requiring huge infrastructure, it posses as a huge potential threat to the existing
Giants.
Red Ocean (Telecom Industry) Vs Blue Ocean (VOIP)
Shifting to the new Technology
We now expect the technological shift to happen with the easing of rules and regulations. The
already available VoIP technology looks to be the next step in telecom industry. There could be
other technologies waiting to take over VoIP as well but as of now we believe VoIP looks like
the next logical step. The smaller communication companies like Geodesic, Tulip Telecom maybe
in a sweet spot to ride the next technological wave.
Conclusion
We believe that the Telecom Giants are about to peak out on their revenue. The only way to sustain
is to bank significantly on the VAS. The new emerging smaller companies in the Telecom space
could be the next in line to see significant growth.
Geodesic is well placed to ride the next wave in shift in Telecommunication industry with its VoIP
venture. We expect a sea change in the telecom industry and VoIP to become the next
technology. It has had a phenomenal growth rate of 94% topline & 102% bottom-line CAGR
over FY05-08 period. This growth has come from its various products which continue to do well
and contribute to the growth.
The future triggers include plans to acquire 3 companies and capex plans of $10Mn to globally
launch its new VoIP product across the globe. Its performance has remained robust in the current
global slowdown. The stock is available at cheap valuations of ~3x FY 09 earnings today.
We believe VoIP to be the Blue Ocean forming in the Red sea of telecom industry & Geodesic to be
the key beneficiary.
VoIP is a step ahead in the wireless
The worlds second largest Cell phone communication, it uses the existing
market is about to see a major change. infrastructure to provide a much
cheaper and better service.
Geodesic operates in a niche area in technology. The For its enterprise and portals and
company derives most of its revenues from publishing clients, Geodesic charges a
developing instant messaging platforms/services and license fee, a customization fee,
licensing them mainly to enterprises under the annuity based service charges and
‘Mundu’ brand. Instant messaging is a rapidly
expanding mode of real-time communication across charges for upgrades and updates.
the world.
For retail customers, it charges a fee
Geodesic’s product (Mundu ICE stack) caters to based on subscription. This model
clients ranging from portals and publishers to clearly provides a sustainable revenue
telecom operators, mobile handset manufacturers,
stream.
system integrators and even end-consumers.
Geodesic also licenses its instant messaging platform The significant proportion of license
to mobile handset manufacturers and telecom revenue means that it is also able to
operators, thus providing it with sustainable revenue de-link revenue growth from
streams, with scope for expanding margins. headcount growth, by optimizing
costs.
The product’s capability of allowing seamless chat
services across Google Talk, Yahoo! and MSN has
been a major selling point to drive sales.
Founded, by Mr. Pankaj Kumar, Mr.
The aim was to develop a global brand,
Kiran Kulkarni, Mr. Prashant Mulekar
as a products company, operating out of
and Mr. Mahesh Murthy, in the year
India.
1999.
A Snapshot
of Geodesic
Enterprise clients : financial services,
manufacturing industries, service At present, enterprise and retail
organizations, portals and publishers. segments contribute about 75-80% and
Retail clients are individual smart phone 20-25% to the net sales respectively.
owners.
A Snapshot…
Geodesic (http://www.geodesic.com) was founded, The company offers its products and services under
by Mr. Pankaj Kumar, Mr. Kiran Kulkarni, Mr. the "Mundu brand name for the retail segment.
Prashant Mulekar and Mr. Mahesh Murthy, in the Geodesic is widely recognized for its scalable
year 1999. content, contact management, presence, real-time
Geodesic operates in a niche area of developing communication and collaboration platform.
various innovative products in the information, The company has effectively used the above
communication and entertainment space. platform to build and deploy innovative front-end
Geodesic's mix of innovative products and high applications, viz. Mundu Instant Messenger(IM),
performance solutions has driven the company to Mundu Radio, Mundu Speak, Montage, etc., for the
profit right from it's first year. Focusing its inventive retail segment. Mundu IM has been recognized as
capabilities across all aspects of communication and one of the top 10 applications and has been used by
collaboration the company is widely recognized for more than 7% of the iPhone users.
its pioneering universal instant messaging system Geodesic has been on an acquisition spree over the
(www.mundu.com). last three years. In 2005 alone, it acquired three
Geodesic's business model is a highly flexible companies, Picopeta Simputers (Rs20Cr in Cash &
combination of license/ subscription fees, per user Stock), a Bangalore-based company, Engage
per annum recurring revenue, pre-paid voice Solutions, a Hong Kong-based company and a
minutes and advertisement/ Click through revenue majority stake in Clangula IT of Sweden. Geodesic
share. They derived 95% of revenues from acquired a web developing company, E Dot
licensing and subscriptions for their product suite Solutions and a 60 year old children magazine -
and services to institutions and the retail segments. Chandamama, in 2007.
The term "geodesic" comes from geodesy, the science of measuring the size and shape of Earth; in the original
sense, a geodesic was the shortest route between two points on the Earth's surface, namely, a segment of a
great circle.
Contd…
Geodesic is all set to contribute significantly to the Geodesic is a proud recipient of several
wave of Convergence by launching innovative international awards including Deloitte Touché
world class products such as the Geodesic IP phone Tohomatsu Fast 500 Asia Pacific for four consecutive
that operates across different platforms of landlines, years, Deloitte Touché Tohomatsu Fast 50 India in
mobile phones & desktops/laptops that will work 2005 and Red Herring 'Top World 100' small cap
on all prevailing internet connections and will help technology companies for 2005.
users save 75-80 % on long distance calls. In January 2008, the company raised USD125 mn,
Geodesic derives its revenues from the following by issuing FCCBs, to fund future acquisitions.
segments Geodesic's current customer base consists of more
1. Institutions: Geodesic caters to a wide range than 95 enterprise customers and over 8.2 lakhs
of institutions including Financial Services, retail customers.
Manufacturing Industries, Service Geodesic's talented staff of more than 400
organizations, Portals and Publishers. employees ensures innovation, utility and ease of
Geodesic targets the institutional segment use. The combination of a highly competent team
through a right mix of direct sales team, and state-of-the-art tools enhance the development
system integrators and value-added of future-proof, useful business solutions.
resellers. In its quest to attain market leadership, Geodesic
2. Retail: Geodesic distributes Mundu- a suite of has also set up offices in the US, UK, Sweden,
products including IM, VoIP, Radio, Email, Mauritius, Germany and Hong Kong with the head
Montage, etc to smart phone users around quarters in Mumbai, India.
the world. Geodesic retails its products Geodesic is a publicly traded company on both
through its own web site (www.mundu.com) India's major Stock Exchanges: the Bombay Stock
and through popular Software retailing web Exchange (BSE) and National Stock Exchange (NSE).
sites, Handset manufacturers and Carriers.
#1. Information #2. Communication
Focusing on 3
emerging space
Mundu's IM not only lets you communicate with all the major IM service
providers through a single user interface but also facilitates in multi-network
conferencing.
Geodesic licenses its instant messaging platform to mobile handset manufacturers and telecom operators, thus providing it
with sustainable revenue streams. The company has already launched its messaging services in Nokia and Sony Ericsson
Smartphone handsets and has an agreement with players like BenQ.
As these companies increase their Smartphone presence in rapidly growing markets such as India and rest of Asia, Geodesic
stands to gain from their expanding presence.
Geodesic' Mundu IM is already being used by more than 4 lakh iPhone users through the internet, which could get a huge
boost once Apple allows third party software platforms on its phones. Its VoIP product, Mundu Speak, allows users to make
calls around the globe for charges as low as 1.5 cents per minute (USA), with zero installation charges as of now.
It is the ‘cost-cutting' feature of Mundu Speak that has tempted the company to work out a subscription model, which it
plans to roll out in a couple of months, as the company is very upbeat about this product.
Entertainment
Entertainment
Geodesic provides access to 1.5 lakh radio channels worldwide through its mobile
internet radio service Mundu Radio, which is bundled along with the IM.
In association with Geodesic, Idea Cellular recently launched a GPRS and internet
radio package, giving access to over 40 digital channels to its users for Rs 149 per
month, wherein Geodesic will earn 30 per cent of the subscription charges.
Geodesic entered the publishing business last year by acquiring the 60-year old
iconic children's magazine, Chandamama for Rs 10 crores, which is currently a small
revenue contributor.
With an archive of more than 5,000 stories, the company plans to make tools
available for people to create online communities, stream audio and video content
and produce animation and graphic sequences.
Growth prospects
According to a recent study by In-Stat, a primary research company, there are about 450 million Smartphones worldwide
at present and its market is expected to grow at over 30 per cent CAGR for the next five years.
Mobile phones users are showing a clear preference to have all their utilities on one single device. Geodesic has integrated
its base Mundu platform with CRM solutions and various mobile phone applications (e.g. radio on mobile and desktop
management).
Mundu user's choice of music, news, communication and other content explodes without the need to carry separate
devices. The wider application base has resulted in strong client addition in FY08.
It also proposes to extend its VoIP suite with launch of VoIP hardware phones priced below Rs 1,500 (in FY09), which
could be a huge market in itself going forward.
2010-11 market estimates 2010-11 market estimates
CMS – $4.3 billion CRM - $10.8 billion
Evolution of
Geodesic
Six (6) wholly owned subsidiaries in In order to expand its product range
India and abroad. Geodesic has acquired companies which
would complement its existing product
portfolio.
Milestones : Year 1999-2004
Geodesic Information Systems Limited, a Information Technology company founded in April 1999. The
company, a small start up company then, entered into the competitive space of Instant Messengers. It was able
to excel in this competitive market with their flagship product Mundu. Geodesic has been the first Indian
company to venture in the Instant Messaging market with a very innovative messenger named Mundu.
Geodesic got listed on the exchange by merging with a listed co. called B.V holdings which was in existence
since 1982 . Rakesh Mathur, a well know name who founded and later sold Junglee dot com has picked up
2% stake.
During 1999-2004 period, very few has conviction to bet on this company, it was the time when software
development was in limelight with Infosys, Wipro taking the hot seat and no one was ready to believe in India
based product company.
This company has been doing well for several years now, its not that it has shown spectacular results all of a
sudden. Revenues and margins are at par with industry standards. They are not a software exporter but a
software product exporter in the telecom space. The industry been growing at 100 % for the past 5 years.
Milestones : Year 2005-06
Geodesic in 2005 has acquired Picopita Simputer,
India, Engage Solutions, Hong Kong, and a major
portion of Clangula IT of Sweden. Overall,
Geodesic has seen a magnificent growth of 80%
YoY with operating profit moving within 50%-
60%.
In order to expand its product range the company is
planning to acquire companies which would
complement its existing product portfolio.
During year 2005-06, it was slowly getting
Recognisations by then it was a 32 bagger in 3
years, but just because they are product company
very few people dare to come out of Infosys/Wipro
and bet on this little angel.
Recently Geodesic Information System has changed its name to Geodesic Ltd. This company cannot be
classified as a typical software company as it has a different revenue mix and business model.
The company has ventured into VoIP segment with its product Mundu Speak. Majority of the Geodesic's
revenues are realized from the enterprise clients.
The unique feature of Mundu messenger is its ability to integrate other existing messengers (AIM, ICQ, Yahoo,
Google Talk and Jabber for enterprise clients) on one single IM platform.
Geodesic's entry into the VoIP segment makes it enter the dynamic Telecommunications Industry in India.
Geodesic recently has decided to launch low cost devices for VoIP.
Milestones : Year 2007-08
Highlights of FY08:
Launched new products for different segments and have
covered new geographic territories and new market
segments with our unique marketing and acquisition
strategies.
Successfully launched Mundu Montage -for touch screen
Windows Mobile phones. Montage lets users create a
collage of text, video, images and multimedia content
and post it to users' favorite social networking sites or
simply e-mail/ID to their friends, family and colleagues.
Successfully launched Mundu Speak during the third
quarter of FY2008 and have seen steady growth in
subscriptions and usage. The product has already been
recognized as the product of the year by no less than
TMCNET in the mobile communication space.
Successfully rolled out Mundu Radio for carriers - a
carrier grade entertainment product in conjunction with
IDEA Cellular in the last quarter of FY2008. The
response to the white labeled IDEA Radio has been
phenomenal.
The Company raised US$ 125 million in the form of
Foreign Currency Convertible Bonds at YTM of 6.6%
with tenure of 5years for overseas acquisitions and
investments in joint ventures & wholly owned
subsidiaries.
Six (6) wholly owned subsidiaries in India and abroad.
Highlights of FY08 (Contd.) : Foreign Subsidiaries
#1. Geodesic Information systems Inc (GISI), USA,
Launched our Instant Messaging on a wider range of #2. Engage Solutions Limited (ESL), Hong Kong,
mobile phones including Blackberry phones and
BREW phones (CDMA Version) during the fourth #3. Geodesic Information Systems AB (GISAB), Sweden,
quarter of FY 2008. #4. Geodesic Information Systems Pte Ltd. (GISPL),
Singapore,
Acquired Chandamama-India's most popular children's #5. Geodesic Technology Solutions Limited (GTSL),
magazine to build our value added services. They are Hong Kong.
in the process of digitizing and mobilizing
Chandamama content to ensure that our products
provide relevant content to a section of the target Indian Subsidiaries
audience. #1. Chandamama India Limited (Chandamama)
Rule #5 : Price
Earnings (PE) Vs
Growth
Value Vs Growth : Always go for
What makes this company stand out of
Growth, because even promoters don’t
the crowd?
know the real value of their businesses.
Financial Numbers (Last 5 years)
Geodesic has witnessed a phenomenal growth in net sales and profits over the last five years.
Net sales and profits have increased at a CAGR of 101% and 112% respectively, since FY’03.
Sales has gone up 15 times & profit 14times during last 5 years. Equity capital rises by 3.5 times.
Company always had a +ve cash flow.
Operating & Net Profit margins are either maintained or increasing. We expect the company to
continue with its robust performance, going forward also.
The company is expected to perform well on account of strong growth being witnessed in the
smart phone market and the wide range of services that the company offers to this market.
Valuation Ratios (Last 5 years)
Average PE of the company was always in the range of 15-25, but poor sentiments has pulled
down its PE to just 3x FY09 earnings, making it a undervalued stock.
Mcap/Sales as on today is just 1 as compare to average value of 6-10 during last 5 years.
ROE (Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested) is in the range of 29-40%
during last 5 years which is a descent return over the period.
Income Statements (Last 5 years)
Consistent growth in
sales and profit
numbers during last 5
years.
Employee cost is just
5% of total sales &
manufacturing expenses
constitute 30% of the
sales.
Interest charges were
lower during 2004-07,
but has gone up a bit
due to outstanding
$125mn FCCB (loans)
during 2008.
Consistent dividend (15-
30%) paying company
during last 5 years.
Balance Sheet (Last 5 years)
Equity share capital was just 6.72Cr in
2004 which is increased to 18.43Cr by
2008; a 2.74times increase in 5 years.
Reserves & Surplus has gone up by
13times during the same time period.
One can see Rs506.67Cr ($=Rs40.53)
as Unsecured loan which is nothing but
the $125mn FCCB raised during 2008.
As on today $=Rs50, hence MTM loss
for this loan is ($125mn*50 = Rs
625Cr) approx Rs118Cr, this is one
reason why market is punishing
Geodesic stock from the day rupee
started depreciating.
Sundry debtor (an entity from who
amounts are due for goods sold or
services rendered or in respect of
contractual obligations) has 83.18Cr due
which is almost 30% of the 2008 sales
as receivables which is a cause of
concern.
Quarterly results for the past three years
During last 3 years, Geodesic has performed better QoQ except for one quarter, Sept’07.
On FCCB of $125mn, 6.6% interest paid per annum, which comes down to $8.25mn (If $~Rs
40 then Rs 33Cr per year but now $~Rs50 hence Rs 41.25Cr per year as an interest).
Liquidity & Turnover Ratios
Debt/Equity ratio is 0.68 mainly due to FCCB.
Bonus issued during 2005, 2007 and likely to be
issued during 2009, when company will celebrate
10th year.
High inventory/ receivables, almost 30% of sales
which is not a good sign.
Current Ratio is higher at 10.97 (this ratio is mainly
used to give an idea of the company's ability to pay
back its short-term liabilities (debt and payables)
with its short-term assets (cash, inventory,
receivables). The higher the current ratio, the more
capable the company is of paying its obligations).
Interest cover ratio has come down drastically
during 2008 to 18.08 due to FCCB. A ratio used to
determine how easily a company can pay interest
on outstanding debt. The lower the ratio, the more
the company is burdened by debt expense. When a
company's interest coverage ratio is 1.5 or lower, its
ability to meet interest expenses may be
questionable.
OPM & NPM are good, it shows that their products
are in high demand and they are able to save
almost Rs40-45 per 100rs of sales.
Equity Share Capital History
Geodesic started ESOP way
back in Oct’2003 which
clearly shows its wealth
sharing attitude.
Bonus issued in the year
2005 & 2007 and
expected during the year
2009 also, this year
coincides with the 10th
years celebration for
Geodesic.
Preferential shares are also
issued to promoters and
HNI/FIIs.
Until June’08, total equity
share outstanding was
9.2Cr (Share capital =
9.2Cr *FV of 2 = 18.44Cr).
FCCB Issue - The Company had
successfully launched US$125 million EMPLOYEE STOCK OPTIONS -
unsubordinated, unsecured foreign Management has granted 12 Lakhs options
currency zero coupon convertible bonds to the eligible employees of the company
due 2013 (the 'Bonds') in January and its subsidiary during the year 2008
2008.
FCCB, ESPO
& Buy back
Buy-Back 25% of Equity Capital, i.e. 2.3
Latest announcement & share crore shares (Max amount Rs 109.86Cr).
transactions also included. Maximum price for Buy-Back = Rs. 75
per share.
FCCB Issued & its impact.
FCCB Issue - The Company had successfully launched
US$125 million unsubordinated, unsecured foreign
currency zero coupon convertible bonds due 2013 (the
'Bonds') in January 2008. Yield to maturity of 6.60% per
annum. Purpose is for overseas acquisitions and investments
in joint ventures/wholly owned subsidiaries and for any
other use.
MTM Loss - One can see Rs506.67Cr ($=Rs40.53) as
Unsecured loan in their balance sheet which is nothing but
the $125mn FCCB raised during 2008. As on today $=Rs50,
hence MTM loss for this loan is ($125mn*50 = Rs 625Cr)
approx Rs118Cr, this is one reason why market is punishing
Geodesic stock from the day rupee started depreciating.
FCCB Buyback - In Jan'09, Geodesic has approved the
proposal to buy back Company's USD denominated Zero
Coupon Convertible Bonds (FCCB Bonds). They have plan to
buyback 25% of the Equity shares of the Company through
open offer @ Rs75 per share up to Max Rs109.86Cr.
Geodesic’s Buy-Back might not succeed ?
Maximum Amount allocated for the Buy- Following are the current market facts about
Back = Rs.109.86 crores. the trading pattern of Geodesic’s equity
Maximum Number of shares to be purchased shares:
= 25% of Equity Capital, i.e. 2.3 crore • Current price of Geodesic’s share =
shares. Between Rs.60 – Rs.65.
Maximum price to be paid during the Buy- • Average Volume of trade on a normal
Back = Rs. 75 per share. day = between 15,000 shares to 30,000
From these details we conclude the following shares. (The volume had spiked in
estimations: between when an FII made block deals
• Maximum number of shares that can be to purchase 1.6% Equity in the company
purchased at Rs.75 per share = 1.465 on 20th March.)
crore shares, i.e. 15.88% of Equity • The earliest that the buy-back can start is
Capital. still about 4 weeks away, i.e. at least one
• For 25% Equity Capital to be bought week after the announcement of the
back, maximum price that can be paid = Result of the Postal Ballot.
Rs. 47.70 per share. • If the company is to buy about 25,000
shares everyday at a rate of up to Rs.75
per share, the number of days it will take
to buy about 1.5 crore shares = 600
trading days.
• Will the buyback succeed?
Expect bonus and/or special dividend in 2009.
If the Buy-Back programme fails… Special Dividend or Bonus on the occasion of the
The company is expected to announce its company completing 10 years of operation.
annual result sometime in the first half of The last bonus that the company had given
May. The results are again expected to be was 2 fiscals ago at the ratio of 1:2 ( 1 bonus
good with at least 10% Quarter-on-Quarter share for 2 shares held). In the last 2 fiscals,
growth in revenues as well as net profits. the company has managed to nearly
Looking at all these facts, we strongly feel quadruple its revenues & profits. The growth
that the share price of Geodesic is not going rate is still very strong & is expected to
to stay below Rs.75 by the time the Buy-Back remain so in absolute terms for the next few
begins in the last week of April. So there is a fiscals.
very high possibility that Geodesic may not We are expecting the company to issue
find many sellers below its limit price of bonus shares in the ratio of anything
Rs.75 per share. between 1:1 to 3:1 (i.e. between 1 bonus
If the Buy-Back programme fails miserably & share to 3 bonus shares for every share held).
almost the entire sum of Rs.109.86 crores Next AGM is in August-September’09 when
remains unused. Then this amount might be one can expect some announcements. For an
used by the company to reward its investor buying Geodesic shares at Rs.60-65/-
shareholders through other forms like Bonus today, the potential capital/value
and/or Special Dividend. appreciation of 20-30% could happen by
Aug-Sept’09.
ESPO Issued & its impact
As on 1st April 2007, options granted and not exercised (in force) = 15,62,743 options
During FY08, management has granted additional 12 lakhs options to the eligible employees of
the company and its subsidiary. Options granted during the Year FY08: 9,00,000 and
3,00,000 options convertible into equity shares of Rs.2 each granted on April 09th 2007 and
September 24th 2007 respectively
Range of Exercise Price (Rs.)
• 31st Mar 07 Rs.40.22-Rs. 119.73
• 31st Mar 08 Rs.79.82-Rs.210.05
Some of the key recruitments over the past one year include…
Mr. Sanjay Ramakrishnan joined as Vice President of Web Marketing. His previous
assignments included Google (Head of Marketing-Consumer Products), Intel, World Space
and Spice Tele.
Jeff Peddle joined as Vice President-Sales and Business Development. He has a total work
experience of 15 years, and was earlier associated with Acorntek Inc., Delivery Network Inc,
and ADVAL Messaging Solutions.
Mr. Subramanyan as the CEO of Chandamama India Limited. Previously he was in charge
of Jasubhai Digital Media.
The company hires excellent individuals like a product manager from Microsoft or taking into
board people of Simputers fame.
Latest announcements & its impact
Apr 10th 2008 - Geodesic Information July 29th 2008 - Geodesic Information
Systems Ltd has informed BSE that the Systems Ltd has informed BSE regarding a
Company has decided to establish a Press Release dated July 29, 2008 titled
subsidiary Company in Mauritius to "Geodesic inks deal with Medion AG to
streamline the Company's stake in its provide award- winning Mundu IM service
subsidiaries and for a better integration and a on new mobile communications device;
smoother flow of information and operation. Leading European Manufacturer to Bundle
– Subsidiaries formation in Mauritius will help Mundu IM on Consumer Handheld Devices”
Geodesic save money from double taxation – There is huge demand of Mundu and other
treaty. products across the globe and this company is
May 6th 2008 - Geodesic Information spreading its arm thru various JVs.
Systems Ltd has informed BSE that the Sept 8th 2008 - Geodesic Information Systems
Company proposes to extend its software Ltd has informed BSE that the Company has
VOIP (Voice Over Internet Protocol) suite become a member of BlackBerry ISV Alliance
with launch of VOIP hardware phones Program. It has bought its innovative mobile
(wired and cordless) in this Financial Year services to black berry users. – Smartphone is
(2008-09). – VOIP is going to shadow growing at 30% rate YoY, and sooner most
existing telecom wire & wireless industry, it of the IT folks will have such devices which
has immense potential, it is just a matter of will help easy access to web and streaming
time, once TRAI acts on this front, Geodesic videos, obviously Mundu will be the choice
‘s product will take the centre stage. due to low cost and good interface.
Latest announcements & its impact (Contd.)
Sept 29th 2008 - The Company has changed Dec 15th 2008 - Geodesic Ltd has informed BSE that
its name from "Geodesic Information Systems the Board has taken note of the resignation of Mr.
Ltd" to "Geodesic Ltd" w.e.f. September 19, Mahesh Murthy and Mr. Rakesh Mathur, Non-
Executive Directors due to their pre-occupation at
2008. – What made Geodesic change its its meeting held on December 15, 2008. They have
name? It was needed because they are not ceased to be a Director of the Company with
only in the field of information but also immediate effect. - Mahesh Murthy was one of the
communication and entertainment hence the founders of Geodesic. A few years later he chose to
new name. be the non-executive director of the company due
to some personal interest, he has started a Venture
Oct 7th 2008 - With effect from October 07,
Fund called Passion Fund in 2000 and a search
2008, the issued, subscribed and paid-up engine marketing company called Pinstorm in year
Equity Share Capital of the Company stands 2004. He continues to be an investor in Geodesic
increased to Rs 184,429,948/- divided into with a small stake of 0.82%.
9,22,14,974 Equity Shares of Rs 2/- each. – Jan 30th 2009 - Proposal to buy back Company's
What we have seen in this company is, they USD denominated Zero Coupon Convertible Bonds
reward their employees thru ESPOs and (FCCB Bonds), as per RBI guidelines under
believe us, this is the best way to keep your automatic route. To buyback of 25% of the Equity
shares of the Company through open offer through
employees an integral part of the long term
stock exchanges. Approved the maximum buyback
vision. Geodesic earns close to Rs110Cr price as Rs 75 per share. – Details on this & its
(FY08) on approx 350 employees, which impact is covered under FCCB & Buyback section.
translates it into 0.30Cr per employee per Geodesic believe that its share price is highly
year, which is much higher compare to other undervalued hence it is better to buyback and
IT players. maximize the shareholders returns.
Disclosures – SAST & Insider Trading
Disclosures – SAST Insider Trading
July 30th 2008 – Genesis Asset Managers & Apr 1st 2008 - Deutsche Securities
Genesis Indian Investment Company Mauritius Ltd – Pre acquisition /sale
Limited bought 34K shares of Geodesic from = 4.22% ; bought 0.87%; total
secondary market. Total holdings are 1.38% holdings 5.09%.
and 3.65% respectively. May 28th 2008 – Rakesh Mathur -
Oct 13th 2008 - Tree Line Asia Master FD Pre acquisition /sale = 1.44% ; sold
(Sing) Pte Ltd has acquired 53.94 lakhs 0.21%; total holdings 1.23%.
shares (5.85%) from secondary market. March 26th 2009 – SR Global
Total holdings after acquisition is 6.05%. (Mauritius) - Pre acquisition /sale =
Feb 9th 2009 - Total no of outstanding 1.66% ; bought 5.87%; total
shares of the Company : 9,22,14,974. Mr holdings 7.53%.
Mahesh Murthy has pledge 760,230 Shares. Conclusion: FII were buying, only
% of shares pledged to total no of one non-promoter has sold small
outstanding shares of the Company : 0.82% stake.
Conclusion: FII were buying during last 1
year, Mahesh Murthy who was seen
continuously reducing his stake has pledge
his remaining holdings of 0.82% stake in
the company.
IIT/IIM & IISc graduates normally do well.
Unknown management with passion & Pankaj Kumar, Chairman / Co-Founder - IIT
vision to make it BIG. Prashant Mulekar, Executive Director - IIM
Prof V Vinay, Chief Technology Officer - IISc
Rule #4 : Unknown
Management - See their
passion not
qualification.
Kiran Kulkarni, Managing Director
Avoid companies backed by established
Atul Chitnis, Chief Products Officer
promoters
Vinod Sethi, Independent Director
Geodesic Management – IIT/IIM/IISc
Pankaj Kumar, Chairman / Co-Founder Prashant Mulekar, Executive Director
• Pankaj Kumar has more than 23 years of experience in • Prashant Mulekar has more than 15 years of
Indian IT industry. experience in the complex field of Finance.
• An alumni of IIT Roorkee, Pankaj is a Co-founder and • He graduated in BE (Mechanical) from VJTI, Mumbai
currently serves as Chairman of Geodesic. and did a PGDM from IIM, Lucknow and then went
• He steered the company during its formative years on to work with TELCO and SIDBI (the principal
and led it to become a product oriented, technology financial institution for the promotion, financing and
focused idea driven company. development of small scale sector industry).
Shareholdings
Net on Net there was no major change Mahesh Murthy & Rakesh Mathur has
in shareholdings during last 1 year reduce their stake.
A glance into history…
Early days year 2002
Promoters holdings use to be
55.54% with majority held by
Pankaj & Kiran. Mahesh Murthy
was holding just 6.07%, he
was more like a PE investors
and in the next six years his
holdings has come down to
0.82%.
One of the prominent investor
from Pune, Mr. Shivanand
Mankekar has taken 7.13%
stake in 2002 itself. He is
famous for making 100 baggers
in Financial Tech & Pantaloon
Retail.
Lloyd George Investment
Management (Bermuda) Ltd a/c
LG India Fund Ltd was the 1st
FII to take 3.66% stake (15.66
Lakhs) in June'02 itself.
Dec’07– Promoters & Non-Promoters
Rule # 2: “Small
Cap” with
Leadership Position.
All multibagger companies started from
Company should control more than 30- a base of very small market
50% of Market. The size of opportunity capitalization, non cyclical, non MNC &
is very important. majority of these companies were
driven by first generation entrepreneurs.
Geodesic product portfolio across retail & enterprise customers.
When it comes to products company (whether it is
a software company or a manufacturing company)
there is a small thump rule you can apply to find
out if the company will do well in the future or
not?
“If a company is able to make a product which is 7
times good as an existing one and in 1/7th cost,
there are very less chance that you will loose your
money invested in that company”
And we think Geodesic is one such company!!!
MUNDU SPEAK MUNDU SMS
Free calls to Mundu users Get replies on your mobile
Make cheap domestic/international calls Integration with phonebook.
Products
MUNDU MESSENGER MUNDU RADIO
All-in-one Messenger Unlimited radio stations
File Transfer Play Mp3 stored in your handset
Web Products
ADEPT (AD DESIGN AND PLACEMENT)
ADePT provides a tightly integrated and editorially
targeted self-service Pay-Per-Click (PPC) and Pay
Performance Marketing (PPM) advertising model
solution.
The capabilities include account, campaign and
MUNDU WEB IM extensible fraud and credit management. It brings a
performance-based billing model to advertisers and
Mundu Messenger enables real-time collaboration online portals seeking greater flexibility.
between trusted lists of IM contacts across public IM
Networks on the Web, Desktop and Mobile phone. It provides presence based self-serviced end-to-end
Mundu IM helps users to stay connected with their online advertising solution for online portals and
IM buddies in a single window. their advertisers.
The product allows users to login to their Yahoo, It helps generate revenues for our portal and
MSN, GTalk, ICQ, AIM, and Jabber networks publishing customers by integrating context sensitive
simultaneously and chat with buddies across all advertisements with chats across Mundu
accounts. This product comes handy for those who Interoperable Instant Messenger.
are frequently away from their PC, or not able to
connect to internet from their desktop computer.
Mundu IM users can also share photos, ringtones,
songs and other files, stored on their mobile, with
all their IM contacts.
Mobile & Wireless Products
MUNDU SPEAK
Mundu Speak provides unlimited talk-time and
allows users to make inexpensive voice calls using
Voice over IP (VOIP) on your Mobile phone.
It has the lowest tariff ever offered by any VoIP
service provider. With Mundu Speak, one can make
MUNDU INTEROPERABLE MESSENGER calls from their mobile phone / PC to any other
Mundu Interoperable enables real time mobile phone or landline phones. Calls between
communication and collaboration between two Mundu Speak users are completely free.
trusted list of IM contacts across popular This product is designed to help users lower their
public IM services including AIM, ICO, MSN, mobile spend, especially on international calls. The
product is available for Windows Mobile Pocket PC,
Yahoo and G Talk on the web, desktop and Palm OS, Windows PC (Desktop Version).
smart mobile phones.
MUNDU RADIO
This product has predominantly been white Mundu Radio allows users to tune into thousands
labeled by B2C and B2B enterprises and of internet radio stations on their mobile phone.
retailed to end consumers on smart mobile The pre-configured list of stations plays music,
phones. news, podcasts, etc. Besides, users can also add their
favorite stations into the playlist, if not part of the
Mundu Instant Messenger is available on
default list.
Mundu IM on Pocket PC, Mundu IM for
The product is available on Windows Mobile
Apple iPhone, Mundu IM for Blackberry, PocketPC, Windows Mobile SmartPhone, Palm OS,
Mundu IM on Palm OS, Mundu IM on Symbian.
Symbian Phones.
Mundu Platform
Over 100 million users now use PC-to-
PC calling from their Instant
Messengers, with a large number of
new users being added every day. For
the first time, Mundu brings white-
boarding technology from the
Instant Messaging enterprise world to the consumer
Instant Messaging is now becoming a communication medium of world.
choice for consumers world-wide. The total volume of instant The Mundu suite of products are all
messages is predicted to exceed that of e-mail messages. created to augment Geodesic's mission
Consumers use various forms of messaging, through a variety of to integrate different aspects of
access points, and typically within a variety of networks. electronic content, communication and
There are more than a billion accounts on IM today. Due to the collaboration to build a global
closed nature of the IM networks, majority of this user-base is community without barriers and
fragmented across 5 major networks. connect people across the world.
Mundu provides a way to break the barriers and tap into this
community of users for low-cost customer acquisition and
engagement. Although most users access IM through desktop
applications, consumer trends reveal a significant movement
towards web browsers and mobile phones.
Mundu enables customer engagement anytime, anywhere
irrespective of the platform of choice.
GeoAmida - World's first integrated mobile computer
While innovation & entrepreneurship has created enormous
wealth, be it economic or knowledge, 4 billion people in
global villages are largely untouched as yet. That's two-thirds
of the global population still living under US$2 per day. The
challenge will be to reach out and enable the Bottom-of-
Pyramid (BoP), to make them an integral part of the
mainstream economy.
A WRI-IFC study indicates that BoP may generate US$ 5
trillion. The stakeholders - governments, enterprises & service
providers need to create solution to achieve it quickly,
effectively and efficiently. The key will be to 'reach out' to
customers with 'full service'.
World's first integrated mobile computer – www.geoamida.com
Linux based, biometric & smart card enabled,
multi-lingual real time computing &
transaction system.
GeoAmida has been designed to meet and
exceed the technological challenge of reaching
the unreached.
GeoAmida technology platform enables the
Government, Financial Institutions, NGO's
and Enterprises to offer & deliver sophisticated
services to their remotest customers, opening
up new markets and creating new
opportunities.
What iPhone did in 2007 was already achieved by 2002 in India.
List of Business relationships for
GeoAmida, impressive list!!!
A large NBFC
Karnataka PDS
Two of the largest Indian Software
Companies
Mid-size Technology & Managed
Service Company
A large 'Navratna' PSU
A large PSU engaged in telecom and
high technology field
A renowned system integrator
based in Chennai
20 more affiliates
A Simputer was built on the premise that a computer is more useful when it is easy to use.
It is the world’s first and only computer that responds to the gestures of the user – one can turn
the pages of an e-book with a flick of the wrist.
It is also the first computer to have an integrated smart card reader/writer which can be used for
identification, sharing and security.
Spyder – Customer Alignment and Retention Management
Spyder is a web based advance CRM system, Execution of targeted mail shots, road show
designed and developed keeping in mind the coordination, tracking of who has received
unique requirements of complex contact literature on a given product.
management needs of financial institutions.
Spyder is designed from the ground up to
Engage Spyder comprises a suite of tools that understand the nature of products in the
enhance customer retention by: the means to corporate financial services industry. Spyder
track client and prospect communication makes sure that products are presented to the
Enabling personalized responses in alignment right customer, which helps in obtaining and
with client specific needs. maintaining a superior relationship with the
customer
Providing mechanisms to target clients based
on their interests and generates alarms when http://www.engagespyder.com/
misalignment occurs, Consolidates
interactions with clients (email, meetings,
product distribution notes etc) and
summarizes from both the client perspective
and the internal staff perspective.
INDIA’S ONLY COMPANY TO WIN Winner by THE C|NET & PC
RED HERRING INNOVATORS AWARD. MAGAZINE
AWARDS AND
RECOGNITIONS
Mundu speak won Product of the year Deloitte Touche Tohomatsu Fast 50
awards 2007 - for innovative India in 2008.
communication solutions awarded by
TMCnet-Technology Marketing Deloitte Touche Tohomatsu Fast 500
Corporation. Asia Pacific for four consecutive years.
INDIA’S ONLY COMPANY TO WIN RED HERRING INNOVATORS
Best buying
price?
Buyback @ Rs 75 might keep the price Phase 3 & final buying – Buy below
of Geodesic in the range of Rs50-70. Rs26 (Unlikely to fall at this level)
Let’s have a look @ share price history
Historical PE of Geodesic was in the range of 15-80 (during last 5 years) but it is trading at PE of around 3
today which is unbelievable and at throwaway price.
Mcap of Geodesic is around Rs460-500Cr today, which was seen Dec’04 & Jan’05. So, you are getting a
company with valuation what it was in year 2004-05.
Historical Chart from Feb 2002 Onward.
Geodesic share price was just Rs33 in Feb’02 which rises to Rs 1,065 in Jan’05. A 32 bagger in 3 years!!!
Today it is trading in the range of Rs60-65 with minimum downside. Due to share buyback (as high as 25% of
equity capital) placed at Rs75, it is unlikely to fall below Rs38 which was seen in Jan-Feb’09.
We can see that, it has formed a base in the range of Rs50-75, beyond Rs75 it can go as high as Rs 150 and
below Rs50 it can fall down to Rs 38-40 levels which is a good deal for long term investors.
From Jan’08 till now….
During last 1 year, which was one of the toughest time in memory, Geodesic share price fell
down from Rs225 to 150 levels 1st and only after Oct’08 massive sell-off it was seen around
Rs50-75 range in 2009. Possibility of further fall below Rs 38 which was the 52 week’s low is
unlikely under current scenarios.
Last 6 months Chart.
Limited downside below Rs38, current price is around Rs60-65 (March 27th), it can fall down to
Rs50-55 levels but below this levels is not likely.
Buying strategies for next 3 month need to be followed after taking initial exposure at Rs50-55.
Very optimistic view on the company Investment Rationale
2. We believe this profitable growth will continue in coming years due to the explosion of Smartphones (450mn,
growing at 30% CAGR), value added services ($2bn Indian market by FY10) and eventual convergence of
communication devices. The company’s products find application in communication, geographical mapping,
feed based news updates, online advertisements, customer retention, entertainment etc. Mundu Speak was the
only Indian product ever to have made to the finals of CNET Webware. The company revolutionized the
internet radio market when it launched “Idea Radio” which was far superior to IVR based offerings or generic
FM radios.
3. Enterprises are always looking to reduce their communication expenses. We believe Geodesic has right kind of
products in terms of collaborative Mundu suite and Mundu Speak to serve this market. It’s VoIP hardware
phones would hit the market in FY09 and we believe it has the potential for huge revenue growth.
4. Their OLAI (Open Learning with Autonomy & Interactivity) is a web based computing platform targeted
towards the huge education sector. The differentiation lies in the traditional integration capabilities embedded
in OLAI solution which enables the students to read eBooks, tag them with internet data and store huge
amount of information. It is a high end product of price ~$500 and would be launched in this financial year
(late quarter). We expect a lot of traction for this product.
Our Perspective
1. We are impressed by the revenue model of Geodesic Information Systems. Unlike many other companies
working in similar domain, their products are monetized. They are not only in “eyeball” grabbing market but
add value to the offerings of their partners. We believe unless an application can add to incremental revenue
of a service provider or an OEM it would not survive in the market for long.
2. Large telecom players would be reluctant to accept offerings like VoIP (allowing users of Mundu Speak to talk
endlessly without paying airtime charges). As the company works closely with service providers for its
application deployment on their network, it may be forced to take a strategic decision of VoIP vs Other
Applications.
3. Dependence on the Mundu IM platform (over 90% revenue), USA market makes the company vulnerable to
recessionary risk. We believe they have a great offering in ADePT which has not been exploited till now.
Digitization of Chadamama should also start contributing in near future.
4. Investments with at least three years horizon can be made in the stock of Geodesic considering its niche
business focused on instant messaging, and the stock’s attractive valuation. At Rs 64, the stock trades at a
throwaway valuation of two-three times its likely 2008-09 earnings.
5. With a net profit margin of over 45 per cent, much higher compared to most other listed, products-focussed
technology companies, Geodesic operates in the high-growth areas of instant messaging and VoIP. The
company has a large roster of well-established clients.
6. In a possible trigger to valuations, Geodesic has announced a buyback of up to 25 per cent of the paid-up
equity share capital (maximum of Rs 109.8 crore) from the open market, at a maximum price of Rs 75. This is
expected to be executed over the next few months.
7. Instant messaging is a rapidly expanding mode of real-time communication across the world. The global
messaging market, which was $65 billion in 2007, is predicted to touch $117 billion by 2012 according to
Portio Research. A more recent report also states that Mobile Instant Messaging, which generated $2.5 billion
in 2008, is expected to increase to $12.4 billion by 2013.
Infosys Vs Geodesic – Just a comparison.
Between the year 1998 & 2000, Infosys’ revenues were comparable to that of Geodesic’s current revenues.
Infosys’ profit margins were around 23%-25% throughout. Infosys’ income & profit growth was strong at
40%-80% year-on-year throughout the period between 1996 to 2006. During most of those 10 years, Infosys’s
share price was trading at around 30 times its EPS (Earnings or Profit per share), except few spikes.
On the other hand, look at Geodesic’s performance over the last five years between FY’03-04 & FY’07-08.
Revenues & Profits have grown at rates between 80% to 140% per year. Net Profit margin has improved to
over 50% levels, twice that of Infosys. And Geodesic is currently trading at just 2-3 times its last years EPS.
Why? Because most of the people still don’t believe that India can do big in product space!!!
Now lets compare the bonus history of Infosys & Geodesic. Between 1996 & 2006, Infosys has given bonus
thrice at the rate of 1:1 & once at 3:1 & split its face value once from Rs.10/- to Rs.5/-. Effectively, 100 shares
held in Infosys in year 1996 would have grown to 6400 shares post 2006. And a major portion of the
multiplication happened after Infosys gained reasonable size in revenues & profits. On the other hand,
Geodesic has given bonus once at the rate of 1:1 & once at 1:2, multiplying the number of shares by three
times. And in 2005, the share’s face value was split to Rs.2/-. And looking at the growth rates that Geodesic is
managing, there will be many more bonus issues in coming years.
Infosys has been consistently giving away 20% of its profits as dividends. In recent years, Infosys has been
declaring special dividends to celebrate certain milestones. Geodesic has been much less generous on the
dividend front. It has been giving away between 5% & 10% of profits as dividends. It has been conserving cash
to invest in expansion of business & acquisitions. At some point, Geodesic will also start sharing a higher
percentage of profits as dividends.
HBJ Cap’s face 2 face with Mgmt.
During crises period ` this co can VOIP is going to change the
cope better as - the products are rules of the game, we have
high margin, employee strength is hardware, software & popular
only 350, after product cost product to start with, just
recovery the remaining is profit and watch our next move!!!
most products are cost saving ones .
Risks &
Concerns
Human behavior Assumptions
Risks…
Inorganic expansion of smaller companies could pose to have initial hiccups. Most of the M&A
fails or sometime over paid.
Operating profit margins for the company will be significantly depressed in comparison with past
performance, once the VOIP operation will start.
Software margins have reduced as anticipated due to an increase in salaries as well as addition in
number of people due to anticipated growth and high attrition rates.
The risks to this business are scalability challenges in executing any multi-million dollar deals,
technological obsolescence and competition from platforms such as IBM’s Lotus Sametime.
Disruptive technologies do emerge, and can leave all competition behind... There are a lot of
players in the Unified messaging space. Let us not forget history - IBM and Apple were true
pioneers in personal computing, but Microsoft did beat them with DOS... Apple was again way
ahead in GUI with Macintosh, but Microsoft again beat them with Windows..
Advice :-
The strong performance in the past is not a bullish sign and doesn't indicate the same or better
performance in the future. Each year is different from the previous one!
Do not let representativeness bias win over your common sense! Always do your homework and
do not forget to do a research before you invest your money!
The business is consumer driven. Therefore in a slowdown the company may be adversely
impacted as the partners would want to reduce their prices in order to stimulate demand.
Step 1 – Top down approach, select the
Step 2 – Automatic Screening Algorithm
emerging sector first and list all the
will filter only 20% of the total stocks
stocks available from that sector.
Methodology used
to select 10in3
stocks
Step 3 – Go for 2-3 weeks brainstorming
Step 4 – Analyse the finally selected on the stocks selected for semi-final
stock in detail and present it well. stage. Ask the mgmt of the company if
any clarification needed.
10in3 – How it was discovered?
ASA
Stock reco from Web Server
various sources like Automatic Screening Details of those stocks
Algorithm - Based on selected are fetched Brainstorming done to finalize the
Newspaper, from HBJ Cap’s best wealth creator stock, this
Magazines, Web, HBJ Cap’s selection
Database. exercise goes for 2-3 weeks. Here
Contests etc principles, only 20% of we call up or meet the mgmt of
the stocks are selected, the company and ask
e.g. out of 10 reco only clarification if any.
2 will make to the semi-
final here.
Analytic
HBJ Cap’s
Application 3rd party database
Servers refer from more info,
Research Analyst & Report like Bloomberg or
designers sit together to Reuter
create the master piece.
HBJ Cap’s Vision "Most Trusted Equity Research & Investment"
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#1 Equity Research in
India by 2012