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Wednesday, October 7, 2009

Small Cap Growth Stock To buy - ABM Knowledgeware

One of the readers asked me my opinion on a small cap stock, which is relatively unheard of, ABM Knowledgeware.

ABM Knowledgeware Ltd., listed in Bombay Stock Exchange, is one of the very few IT companies in India with exclusive focus on E-governance since 1998.

Within seven years of its foray into the E-governance space, ABM achieved the distinction of winning the prestigious award of “The Best Technical Organisation in E-Governance” in India adjudged by the Ministry of Information and Communication Technology, Govt of India and IIT Delhi.

What makes ABM stand out is its exceptional track record of successful project implementation, sustenance over extended duration and delivering Return-on-Investment for all the Stakeholders. In fact, ABM is one of the few companies in India which possesses IPRs for its various proven and sustained E-gov solutions. This journey of ABM is populated by several Milestones signifying growth of ABM in this very challenging and tough market segment.

Recently the Company has been conferred on the prestigious NASSCOM EMERGE 50 LEADER Award by NASSCOM in a glittering Award ceremony held in New Delhi on August 28, 2009. This recognition has been given to ABM in the category of Emerge Domestic Market- exclusively for the emerging IT Companies to showcase their unique value proposition and create a distinct niche for themselves.

If you look at the company's financials and results, it is growing at fairly high growth rates. Company's sales turnover has been grownig almost more than 50% for past three years.

Mar 2007 : 18.21 CR.
Mar 2008 : 31.05 Cr.
Mar 2009 : 44.21 Cr.

Although reported net profit has been at same levels for 2008 and 2009 (6.28 and 5.94 Crores resply), net profit growth was phenomenal for 2007 to 2008 (1.1 to 6.28 Crores!).

Company has increased it's dividend from Rs. 0.50 to Rs. 1.00 this year. Dividend yield seems moderate.

Promoter holdings are at 60%, so at good levels for a good stock. There are few institutional investors too in the stock.

The field in which company operates, e-Governance, is a separate niche in which there are very few companies which operate and provide software solutions to government/municipal institutions in India. The e-Governance domain is increasing at moderate speed as government and municipal institutions are awakening to realise the power of IT.

So is ABM Knowledgeware a stock to buy? No doubt it is a small cap growth stock.

It's 52 week low: Rs. 9.30 and CMP Rs. 44.50. I would certainly advice not to buy stocks of ABM right away but keep watch on it and add in moderate quantities at big deeps when in correction mode. As usual, do not bet your entire money on one stock. Diversify your portfolio. 5 - 10% of your portfolio is what I would suggest you to invest in small cap stocks like ABM. Investment horizon needs to be of few years (maybe 4 - 5 years).

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