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BACKGROUND

Incorporated in 2006, Latent View is the leading pure play analytics services company in india.The company provides services such as data and analytics consulting, business analytics & insights, advanced predictive analytics, data engineering, and digital solutions.

Objects and Details of the Issue

The public issue consists of fresh issue of Rs 474 cr for the following

* Funding inorganic growth initiatives ( Rs 147.9 Cr )

* Funding working capital requirements (Rs 82.4 Cr )

* Investment in Subsidiaries to augment their capital base for future growth( Rs 130 cr )

Offer for sale of Rs ~126 cr by the Promoter and the selling shareholder

Investment Rationale:

* Growth in the industry will lead to growth for the company

* Recognized leadership position in data and analytics with a wide range of capabilities

* Strong financials

Valuation and Recommendation

Over FY19-21, the company sales have grown at a CAGR of 3.1%. In FY 19, management started a strategy to defocus on a book of work that was high volume but less margin accretive and less of value add for clients. These were essentially contracts where the company was providing point expertise to its clients in the form of people. The company wanted to consciously move to a higher portion of Managed Services where bulk of the work was delivered from Centers of Excellence in India. With this, the COE or Managed services component of the business during this period FY19-21 has gone up from 40% to 65% levels. While this meant lower revenue in absolute terms however, the quality of earnings went up which is reflected in the margin profile improvement. FY21, Q1 and Q2 were impacted by COVID as clients hit the pause button on new deals.

But Q3 21 onwards the company have witnessed a very strong bounce back and the company could record revenue at par with FY20 for FY21. Q1FY22, the company has recorded a growth of 20.3% YoY, indicating recovery. Acquisition of new larger accounts and with cross sell and up sell opportunities available to its acquired clients, supported with inorganic growth, will help the company to grow ahead. In FY21 Ebitda margins stood at 35.2% higher than FY19 margins which stood at 25.2% , which indicates the company’s strategy of focusing on margin accretive clients is playing well. We feel with covid situation normalizing , some of the expenses like travel expense, other expense is likely to come back going ahead and is likely to impact the margins by 2%. FCFF for the company stands at Rs 88 cr. ROCE of the company stands at 20.4% in FY21 and ROE stands at 20.9% in FY21. At the given upper price band of issue of Rs 197, Latent Analytics is offered at PE of 43.7x annualized Q1FY22E earning which we feel is attractive. We recommend subscribing to the issue.

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