Happy 2018 readers of the Trader Diaries. After a barren December, we entered a new year with new trading opportunities. In the first supers...

Weekly Superstock Scan 8 Jan 2018 - 12 Jan 2018: Sify Technologies Limited

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Happy 2018 readers of the Trader Diaries. After a barren December, we entered a new year with new trading opportunities. In the first superstock scan of 2018, there are a number of stocks that passed the technical scan, but only one stock fulfilled all the criteria. That stock is Sify Technologies Limited (SIFY).




Sify is one of the largest integrated ICT Solutions and Services companies in India, offering end-to-end solutions with a comprehensive range of products, delivered over a common telecom data network infrastructure reaching more than 1400 cities and towns in India. This telecom network today connects 45 Data Centers across India, including Sify’s 6 concurrently maintainable Data Centers across the cities of Chennai, Mumbai, Delhi, and Bengaluru.

SIFY operates in 5 segments:
a) Telecom services
b) Data Centre services
c) Cloud and Managed services
d) Technology Integration services
e) Applications Integration services


Technical



SIFY has been trading mainly in a range from $1.40 to $1.80 since October. Last week, price surged to $2.54 on very high volume. The volume of the week was 4.1 million shares, 2.7 times its average trading volume. This is despite the week being a shorter trading week.

Fundamentals


Including the current quarter, SIFY recorded 2 consecutive quarters of year-on-year EPS growth. The trailing twelve months EPS growth has been fairly stable in the past quarters ranging between 3-5 cents. However, the trailing twelve months EPS for the last quarter is 6.6 cents, indicating a strong breakout in earnings.

Successful Transformation to "Sify 3.0"

In 2012, SIFY reorganised their business to enable scale, flexibility and the ability to cross pollinate our business across multiple verticals. The focus of the business shifted to Solutions and Services from a hitherto infrastructure focus.

Post transformation, a significant part of their revenue is derived from services to enterprise customers, comprising Telecom services, Data Center services, Cloud and Managed services, Applications Integration services and Technology Integration services. SIFY also provides services that cater to the burgeoning demands of the small and medium business (SMB) community, much of it on its Cloud services platform.

Technology Integration Services (TIS) has been a main driver of growth in recent years. TIS combines Sify’s IT capabilities with its core telecom and Data Center products to provide a converged turn-key ICT solution to the customer.

Indian Government Initiatives

Government initiatives like Digital India and the Smart Cities Mission are likely to bring in significant business opportunities. SIFY is heavily involved in Digital India initiatives and the various digital transformation projects continues to be a key growth driver. Nearly 20% of SIFY business comes from government. Successful delivery of the large government projects will help build equity with Enterprise customers for their projects.

Matrices
- Large float of 193 million shares with a average weekly trading volume of 1.5 million shares. The float is thus almost 130 times its average trading volume, limiting its potential for big moves.
- SIFY is trading at 35 times its trailing twelve months EPS.


Risk Factors/ Things I do not like:

  • High Valuation: With SIFY trading at 35 times its TTM EPS, there is a good chance that it is already fairly valued and upside might be limited.
  • Recovering capital spend: The pace of change in the telecom industry is fast and erratic and the technology churn happens every 2-3 years. There is high room of error as a wrong investment may lead to a loss if recovering that capital spend in short timeframe is not possible. Alternatively, not investing correctly may also put the company behind as innovation is important in the industry. 


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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.