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Wednesday, November 24, 2010

Company: AGC Networks: Cheap Stock..Value Buy!!

AGC Networks:
CMP: 229.50
Market Cap: 326.8Cr
Sales year ending Sept 2010: 541.80Cr
Gross Profit: 45.12Cr
Net Profit : 34.6Cr
Debt : NIL

AGC Networks erstwhile Avaya Global Connect majority stake was bought by Essar group from Avaya. 59% stake was sold for 44 million USD ie  198Cr that would put a value of 335Cr for AGC Networks. Essar group had a additional stock buyback for another 20%

Avaya is one of the leading players in the world for endpoint IP based solutions and it sure seems a bad move to sell a company (AGC Networks) in one of the fastest growing economies of the world (India).

Avaya however did make a 900 million buyout of Nortel enterprise solutions. Maybe Avaya needed the cash. AGC Networks already has a set practice which includes Avaya products and solutions. Essar becomes a high profile channel partner for India. (my guess).

lets return to AGC network valuations.. If you look at the latest Sept filing by AGC Networks..
Reserves is 238.82Cr
Cash and Bank Balances: 153.35Cr (consolidated) 143.26Cr (Standalone)

If we remove the cash component the Enterprise value would be Market cap - cash in hand = 326 - 153 = 173Cr

So here we have it Gross Profit is 45.12Cr Profit before tax is 52.34Cr as 6Cr is interest income. has 153.35Cr of cash and bank balances.. has Zero debt and 238Cr of reserves.. this is for a 500Cr sales company with enterprise value of 173Cr.

Conclusions: AGC networks is Cheap very cheap!! though promoters are now Essar group and not Avaya.
In a growing field with a global giant like avaya backstopping AGC with technological support its a Winner.. the only thing is the Essar group with 80% holding..hopefully they will have shareholders interest in mind as they are the largest shareholders.. FYI there is a Rs4.50 dividend with an Ex dividend date as 29th Nov 2010 ..


Vijay Chandrakar said...

So Prahalad...do u recommend a buy now?

What'sUp Prahalad said...


I guess you can buy.. cause you get a dividend also of Rs 4.50 if you buy before Nov 29,2010..
(though the stock has already reacted to the dividend and closed up to 245 from the recommended price of 229.50..)

long term its still a value buy as adoption of IT and unified communications is certain for sure.. and AGC right now is deeply discounted..

Pls note all recommendations are for 12 months or more..

=happy investing

arunsg said...

Avaya is passe. The enterprise network is being taken away from Nortels and Avayas by Ciscos and others of the world. Plus since when has any acquisition by Essars deemed a plus? Essar group has at best, a questionable reputation!

What'sUp Prahalad said...


Market cap of AGC is: 263Cr while the company has cash of 153Cr and net profit of: 34Cr so actual valuation of the company is just 76Cr

there is value and promoters own 75% so not much that can go wrong out here.. and a dividend of 3.50

no doubt ruias are not well known .. but not much to loose..

I would recommend "best buy" as stocks worth buying for the long term.. these (ADC,AGC) stocks hold value but are very small investments for me personally..

=happy investing