D-Link (India): CD Equisearch retain 'buy' rating but raise target price
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Spurred by increased demand from the migration of infrastructure to the cloud as well as rising demand from compute intensive workloads- such as AI, analytics and Internet of Things (IoT), both in enterprise and start up businesses, Indian public cloud services market is estimated to grow by 38% to $1.81 bn in 2017, reckons Gartner Inc. Infrastructure as a service (IaaS) would grow the fastest (49.2%) - mirroring the global trend with 36.8% rise in 2017 - followed by 33% growth in software as a service (SaaS) and 32.1% in platform as a service (PaaS). Migration of application and workloads from on premises data centers to the cloud as well as evolution of cloud ready and cloud native applications explain the mammoth rise in SaaS and PaaS.
Gartner reckons that cloud growth in Indian infrastructure compute services space would pick up as adoption increases. It also posits that through 2020, cloud adoption strategies globally will influence more than half of global IT outsourcing deals. It asserts that as enterprise application buyers are increasingly adopting cloud services, more than half of new 2017 large North American application adoptions will either composed of SaaS or other forms of cloud based solutions.
Other digital technologies are also making awe-inspiring progress in India. According to Research and Markets, Indian router and switch market is steadfastly growing driven by increasing use of internet enabled devices, rising internet penetration, government initiatives like Digital India, Smart Cities and Make in India, emergence of IoT and growing adoption of solution like social, mobility, analytics and cloud. Managed switches market has flourished not least due to growing amount of data traffic over the network coupled with increasing bandwidth requirements in the enterprise market.
Team F1 Networks (Team F1) recently tied up with D-Link Corp to deliver mydlink business - a cloud based device management platform for enhancing productivity of small and medium-sized businesses (SMB). Jointly developed by D-Link and Team F1 team (located in Hyderabad & Silicon Valley) over a period of two years, this platform addresses demand for secured network access and premises surveillance for global chain stores, regional system integrators (SI) and value added resellers (VAR) and telco/ISP based smart home, office and city offerings. Opportunities galore for Team F1 for the tie with D-Link Corp for mydlink business was soon followed by a partnership with Reliance Jio Infocomm (Jio)for delivering a home gateway solution (HGW) and joint reference solutions for seamless “connected-home” experience for media, television (IPTV, STB), telephone (VoIP), gaming, and internet. Team F1's HGW - a turnkey software package - would enable auto-provisioned residential gateways and CPE routers deployed by Jio.
Transformation of sorts awaits Team F1 for its recent tie ups with D-Link Corp and Reliance Jio has anything but short term implication. More contracts for mydlink business are expected to flow in from various other regions across the globe. Demonetization of high value Indian currencies has not helped promote digitalization but also decimated numerous unorganized players who posed no less great threat to entrenched firms. Alliance with MOXA for industrial networking solutions would patently help execute smart city projects. Its IT surveillance business is expected to get a facelift as it would soon launch cost effective cameras with focus SOHO segments and high-end ones for offices, campuses and colleges.
The stock currently trades at 18.4x FY17e EPS of Rs 7.71 and 15.2x FY18e EPS of Rs 9.33. Strenuous rebound in business activity post an outlandish Q1, renewed digitalization focus post demonetization and recently forged alliances of Team F1have justly burnished business prospects. Enhanced focus on building value added distributors would expand its market reach beyond big cities and towns. Yet at any rate, grasping fluctuations in foreign exchange market and unforeseen delays in government orders - be it for railways or defence or smart cities - could wreck demand momentum. On balance, we retain our buy rating on the stock with revised target of Rs 171 (previous target: Rs 123) based on ~18xFY18e earnings (peg ratio: 0.9), over a period of 9-12 months.
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CD Equisearch Pvt. Ltd. is one of the leading stock broking firms in the country with strong presence in the institutional and HNI broking segment. The company boasts of a strong Equity Research Division, and has offices in the several cities in the country including Mumbai, Kolkata, Delhi, Bangalore, Hyderabad and Chennai. The company serves a huge clientele of over 4,000 retail clients, High Net worth Individuals, Non Resident Indians, large Corporate Groups, and Financial Institutions. For more information, please visit www.cdequi.com.
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- D-Link (India): Buy at CMP and add on dips to Rs 105-108 band
- IT Index Stands Firm in the Demonetization Tempest
- D-Link (India): CD Equisearch retain 'buy' but revise target downward
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