Edelweiss Research has come out with pre earnings report on Sasken Communication. It has recommended buy rating on the stock.

Expected numbers

Edelweiss expects Sasken to close Q4FY07 with revenues of INR 1.4 billion, registering a Q-o-Q growth of 9.4% and Y-o-Y growth of 83.7%. Net profit estimate stands at INR 133 million for the quarter, a growth of 12.4% Q-o-Q and 112.2% Y-o-Y.

Edelweiss report on Sasken Communication

Product blues to end soon, H1FY08 to give visibility

We expect INR 106 million of product revenues for the current quarter, up from INR 41 million in the previous quarter. In the previous quarter, some product milestones had been delayed, which are expected to be recognized in the current quarter. Moreover, most of the phones models (design-wins) are expected to be shipped in the first half of FY08, post which we expect product revenues to grow significantly.

Forex and client delays to impact services growth

During the current quarter, the rupee appreciated against the USD by 1.8% compared to the average rate in the previous quarter, which will impact revenue growth. We expect revenues form services to grow at 4.7% Q-o-Q in rupee terms, which is low also on account of higher time taken by customers to initiate the project.

Sasken Application Framework integrated onto TI’s OMAP platform

Sasken announced during the quarter the integration of its Application Framework onto Texas Instruments’ (TI) LoCosto chipset. We also note that this framework is scaleable from low-to mid-tier mobile phones across both the platforms and reusable across TI’s wireless solutions. Also, as indicated by the management, there is an encouraging order pipeline for this product line and the company is close to achieving a sign up for the product from a handset customer, which is positive.

Valuations

At a CMP of INR 475, the stock currently trades at a P/E of 13.7x and 10.8x and EV/EBITDA of 8.8x and 6.8x for our FY08E and FY09E, respectively. We retain buy recommendation.

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