Friday, July 2, 2010

Axis IT&T Ltd : Sizeable Accumulated Losses, But Turnaround Likely To Gather Pace

BSE Code : 532395
Website     :
CMP             : Rs 63.75 (closing price, BSE, 2nd July, 2010)

Background :
Axis IT&T (AITT) is an Engineering Design Services (“EDS”) company listed on BSE & NSE. The company delivers design based solutions to global engineering majors. The company’s clients include several Fortune 50 companies in the Aerospace, Aviation, Automotive, Manufacturing, Military, Semiconductor and Medical industries. AITT is licensed to design, develop and manufacture defense and aerospace hardware and software.

[ Update : The company is known as AxisCades Engineering Technologies Ltd since August 2014, following the merger of its subsidiary Cades Digitech Pvt Ltd. ]

The company was taken over in 2008 by Tayana Software Solutions Pvt Ltd, which is a subsidiary of Axis Aerospace & Technologies Pvt Ltd (AAT, website :, which in turn is a subsidiary of Jupiter Capital Pvt Ltd (JCPL), promoted by ex-FICCI president & Member Of Parliament Mr. Rajeev Chandrashekar (

JCPL also owns Jupiter Aviation & Logistics (JAL), which is working on building the entire value chain for aviation industry. Right from designing software for the aviation industry, JAL is putting through the links for aircraft maintenance, repair and overhaul, training and also building a aviation SEZ and an airport at Hassan district of Karnataka.

AITT , which has carried forward losses of Rs 22 Cr as on 31.03.2009 (FY10 Annual Report is not out yet) has turned around in the last couple of years. It has expanded it’s development centre’s at Hyderabad & Chennai over the last year, benefits of which should be visible this year onwards.

Recent Developments :
In October 2009, AITT has aquired a majority (54.28 %) stake in CADES Digitech Pvt Ltd (CADES) , a product design and engineering services company with emphasis on aerospace, automotive & transportation sectors. [ Note : Source of funds for this acquisition is not clear.]

CADES has turned the corner in the second half of FY10, but it too carries the burden of heavy accumulated losses - 52 Cr till 31.3.2009 (FY10 Annual Report not yet out).

Headquartered in Bangalore, CADES has 15 offices in 10 countries across India, North America, Europe and Asia Pacific.

CADES is an Airbus “preferred partner” in India along with HCL, Infosys, TCS, Tata Technologies and Wipro, all of whom provide Airbus with engineering and/or IT services to design and support its aircraft. CADES is currently executing a 2-year multi-million dollar contract from Airbus for the design of A350XWB composite structures.

CADES is also a "preferred supplier" for Engineering Services to EADS, a global leader in aerospace, defense products and related services.

CADES is also executing projects for various Indian defence organisations such as Defence Research & Development Organisation (DRDO).

CADES was recently conferred with the prestigious “Emerging Company Award 2009 - Indian Design Suppliers for Aviation Market” by Frost & Sullivan.

In Feb 2010 CADES inaugurated it's dedicated offshore center of excellence for GCT-GED, to provide Design and Analysis services to global Aerospace OEM’s.

In a 2009 interview, the company's MD had projected the company to grow at a scorching 70% average growth rate in the coming 3 years, making it a USD 100 million (Rs 470 Cr @ 1 USD = RS 47) company by FY12.

The core competencies & future plans of CADES are addressed in the Frost & SullivanMovers & Shakers” Interview with S. Ravi Narayanan, Chariman & CEO, CADES (now also CEO of AITT) available on this link :

From 1st April, 2010, Mr. S. Ravi Narayanan has taken over as the CEO of AITT. His background, given here in brief, inspires confidence :
• He is currently Chairman of FICCI Task Force on Defense Offset.
• An Aviation Professional for over 25 years.
• A Former Board Member of Airbus Engineering, India.
• A Former Board Member of Air India and Indian Airlines.

Also in April 2010, AITT announced plans to provide end-to-end services for the energy sector from designing a power plant to testing the processes. Newswires quoted a company official as saying “For putting up a 1-MW solar power plant it costs around Rs 17 crore, and Rs 10 crore for a thermal plant. The design cost involved will be around 2 per cent. With hundreds of power projects, including non-conventional energy, lined up in India the company has a lot of opportunity in this sector”.

Latest Results:
AITT reported Sales of Rs 77 Cr, with PAT of 3.25 Cr on a consolidated basis for the year FY10 (1.4.2009 to 31.3.2010). On an equity of a tad under 10 Cr (Face Value Rs 5/-) this works out to an EPS of Rs 1.63.

Interestingly, 33 Cr of Sales & 3.4 Cr PAT was clocked in the last quarter itself, majority of it contributed by CADES, suggesting that the company’s expansions and acquisitions over the last 12 months have finally started bearing fruit.

Recommendation :
It is difficult to recommend an outright "Buy" on AITT at the current valuations, given the considerable accumulated losses of the company & it's subsidiary CADES, as also the uncertain situation of the global economy, and especially the stock's big run up on the bourses – up over the last year (up 5-6 times).

However , the AITT-CADES combine caters to the engineering design requirements of the aerospace-defence-power sectors, among others, so the opportunity & potential is massive & unambiguous :
• Aerospace - Billions of USD are spent in engineering design services each year .
• Defence – A more than 10 billion dollar defence offset commitment to be met by global OEM’s .
• Power - Hundred’s of power plants lined up in India, of which 2% of the cost will be spent on Engineering design services – again a billion dollar market .

In fact Booze Allen Hamilton has projected India's offshore engineering servicees industry to become a USD 3 billion industry by 2020 .

With CEO Mr. S. Ravi Narayan leading the way, and as part of the Rajeev Chandrashekar group that has plans in place to straddle the entire Aerospace industry, it certainly appears that the AITT-CADES has the right pedigree & backing to build a bright future for itself as a big player in the global EDS industry.

Indeed, CADES' recent contract with Airbus for the design of A350XWB composite structures also clearly establishes that the combine is able to compete with the best in the global EDS industry. CADES would also be exhibiting it's capabilities at the Farnborough International Airshow 2010 to be held from 19-25 July 2010 , which would give further visibility to the combine.

To conclude, AITT has shown with it's acquisition of CADES in just the 2nd year since the new promoters took over, that it will use the acquisition route with telling effect to quickly acquire scale & capability. AITT is currently the only listed entity of the group.

So with the backing of  the cash rich promoter group, it is very likely that further strategic acquisitions will follow over the next few years. There is also the possibility down the line of a reverse merger with it's parent, or merger with other group companies in complementary businesses, and that could well change the balance sheet picture comprehensively.

Keeping the above in mind, this author recommends keeping the company under active watch. Investors are invited to research the company & the opportunity extensively, and keep tracking the company’s progress.

At an opportune time, when one is convinced that the potential rewards outweigh the risks, one may enter this stock.

Author : Bosco Menezes

Recommendation Date : 2.7.2010

Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at .