Ceinsys Tech Ltd.
27 October 2024
By Majid Ahamed
About the Company
The company is engaged in providing value-added Solutions for various segments into SMART CITY solutions and Software under the ITES business segment and is primarily dealing in providing Geospatial, Enterprise & Engineering Services and software products. The Geospatial engineering services and Enterprise solutions offerings encompass various aspects of geospatial intelligence, including Data Creation, Data Analytics, Decision Support Systems (DSS), Enterprise Web Solutions, and Dashboards.
The Company does the following is primarily into two categories:
- Geospatial Enterprise & Engineering Solutions
- Manufacturing Solutions
Investment Rationale:
- The company is well positioned to grow from Geospatial Industry Growth, with a strong macroeconomic tailwind
- The company had ventured into EV Tech & Engineering which has been one of the growth levers driving the margins.
- The focus is to increase the export revenue through M&A and increase focus on investing in Data Centers, which would accelerate the pace of growth in the coming years
History of the Company:
Source: Investor Presentation
Business Segments:
Geospatial & Engineering Solutions
This segment currently contributes nearly 83% of the total revenue of the firm, the company currently is in the core business of geospatial and Engineering Solutions, where the company provides majorly GIS, Imagery Analytics, Engineering Design, and Enterprise Solutions.
In the smart city domain, the company leverages various platforms, including C30 and an advanced technology stack, along with high-end equipment to provide cutting-edge solutions. By utilizing imagery analytics and engineering design, the company effectively serves multiple industries, including Water and the AEC (Architecture, Engineering, and Construction) sector.
The company uses Market Leading Software and the latest equipment in delivery services such as Camera, and 3D Road Geometry Maps.
Manufacturing Solutions
Following the acquisition of AllyGrow Technologies in FY22, the company has ventured into Manufacturing Solution Services, primarily catering to the automobile industry. Through this expansion, the company has secured marquee clients such as BMW, Bentley, and Caterpillar Inc. These R&D solutions are provided via a joint venture (70:30) with Grammer, a Germany-based company.
Under Manufacturing Services, the sub-classification of those services are:
- Product Engineering
- Under Product Engineering, the company does engineering seating feasibility checks, surface checks, Engineering Design, CAD modeling, etc.
- Industrial Automation
- In this segment, the company focuses on providing tech solutions for plant layout, and robotic automation, through simulations and tooling development where the company provides layout design, assembly process, and process audit
- Process Competence
- In this segment, the company provides complete EV Mobility Solutions, for companies of Embedded Hardware and Software, IOT Integration, System Testing, Cybersecurity -Penetration Testing, and so on.
Geographical Classification
In terms of geographical classification, the majority of the revenue comes from India, nearly 83% of the revenue, and around 17% comes from exports.
Management
The company’s management is led by Mr. Sagar Meghe who is the Non-Executive Director and Chairman of the company and Chairman of “Meghe Group”, he has been instrumental for the company to grow in great heights. The company has appointed Mr. Kamat as the Whole Time Director, Vice Chairman, and Chief Executive Officer at Ceinsys Tech. He was previously the Chief Executive Officer at AllyGrow. As a techno-commercial professional, Prashant has a progressive career of over 28 years and has a proven track record in operations, finance, strategic marketing, business expansion, and new product development.
The Board of Directors comprises Chartered Accountants, Tax Lawyer, IRS Officers, and Scientists, which ensures the diversity of the board is intact this would help in terms of building the right process, control, and system in the business with the specialized expertise of those professionals
Currently, the shareholding of the company is 51.86% which is reasonable for the company’s size.
One of the red flags the company has is the KMP remuneration to the Net Profit, which is nearly 15% of the total profits.
Deep-Dive on the Investment Rationale
The company is well positioned to grow from Geospatial Industry Growth, with a strong macroeconomic tailwind
Ceinsys Tech Ltd, with a strong focus on providing full-service Geospatial & Engineering Solutions, has achieved an impressive 90% win rate for new orders, largely due to its expanded capabilities across various sectors. The company’s expertise is not limited to a single domain; it actively serves diverse industries including Water, Energy, Transportation, and Architecture, Engineering, and Construction (AEC). Ceinsys has also undertaken and successfully executed prestigious projects under the Indian government’s Jal Jeevan Mission, which aims to provide safe and adequate drinking water. Given that the water sector is projected to grow at a 7-8% CAGR, this focus aligns well with the company’s strategic growth trajectory.
The demand for advanced geospatial services continues to rise as industries increasingly rely on cutting-edge technology to maintain strong asset control and enable strategic infrastructure planning. Ceinsys empowers clients to leverage data and insights that enhance decision-making, while integrating advancements in AI and IoT into geospatial engineering—a potential game changer for the industry.
The global geospatial market, currently valued at approximately US$ 681 billion, is forecasted to grow at a 14.61% CAGR, reaching US$ 1.44 trillion by 2030. Notably, growth is expected to accelerate to 16.1% CAGR after 2025, driven by the expanding applications of geospatial data in strategic asset management, urban planning, and industrial automation.
The company had ventured into EV Tech & Engineering which has been one of the growth levers driving the margins.
Following the acquisition of Ally-Growth Technologies in FY22, the company has expanded into the Engineering and Tech Mobility Services sector. In collaboration with Grammer, a Germany-based firm, the company has established a joint venture (JV) with a 70:30 ownership structure, aimed at R&D collaboration. This partnership, combined with the company’s strong client base and proven project execution capabilities, has resulted in an order book exceeding ₹150 crores to be executed in the coming months. In just two years since the acquisition, the company has achieved substantial growth and is well-positioned for continued expansion. This is expected to make a significant contribution to the company’s topline in the years ahead.
Strong Focus on M&A and focus on Data Centers which would strongly accelerate the pace of growth:
The company is set to focus on strategic M&A and has raised preferential allotment of over 250 Cr where they have issued warrants and shares to the investors as well as to the promoters of the business, with this capital the company is looking to expand their offering by expanding their services to Data Centers, not looking or physical data center setup as per the management commentary they are looking for tech enable area to partner with Big Tech Giants such as Amazon, Google as so on.
The company is looking to expand through acquisition to tap into the global markets, especially in the geospatial arena, where the company’s current contribution to export in the geospatial segment is less than 2%, with the potential M&A the company would tap into the global geospatial segment which is massive growing at 12% CAGR with nearly US$1 Trillion market size, hence if they strongly execute and able to integrate the acquired company strategically with a reasonable valuation this would another leg of growth that pushes the earnings potential further.
Risk/Threat
High Working Capital Requirement: As the company deals with government bodies there is a higher requirement where the DSO (Days Sales Outstanding) has been higher over the years, in recent years the company has been able to reduce the DSO slowly and steadily, despite the fact that the reduction still there is a risk of which the working capital requirement high to run the business of geospatial failure to have the required working capital.
Regulatory Risk
Company another major risk is high regulatory risk, as most of the order book value is from the government hence if there is any regulatory change via tenders or any failure to continue projects with the specific government department could lead to a higher risk of revenue growth leading to a massive dip in the earning growth for the company. As they deal with government entities, there is also the risk of collection of receivables as well. In FY24, there was an increase in Bad debt Write-off from 2.79 Crores in FY24 to 7.05 Crores, even though there was nearly an 8X increase in the provision of doubtful assets. This is a major risk the company has, if not properly managed.
Customer Concentration Risk
Ceinsys Tech’s order book remains concentrated with the top ten orders accounting for around 80% of outstanding order book value, thereby exposing the company to concentration risk. Also, the customer base is concentrated with the top 10 clients contributing to around 55% of the revenue in FY24. The counterparty risk is mitigated by the company’s long-term association with reputed clients.
Valuation
As of October 27th, the company’s market capitalization stands at ₹1,796 crores, with a trailing twelve months (TTM) P/E ratio of 46.6. Among its peers, Cadsys India Ltd, which operates in a similar segment, holds a market cap of ₹106 crores and trades at a P/E ratio of 13.6. However, Cadsys faces significant financial challenges, including negative operating cash flows and substantial debt on its balance sheet. In contrast, this company maintains minimal to no debt and operates with negative working capital, eliminating the need for external funding for operational liquidity. This robust financial structure, coupled with a high tender win rate of 90%, creates a strong competitive moat, positioning the company as an attractive investment opportunity.
While the valuation may appear elevated at first glance, the company’s dynamic growth strategy, both organic and inorganic (via M&A), supports its earnings potential. Historically, the company has achieved an EPS CAGR of 160% over the past three years, underscoring its growth momentum. Even if this pace moderates, it is reasonable to expect earnings to grow at a 30-35% CAGR in the coming years. Key growth drivers include the expansion of data center tech solutions and strategic investments in international talent, such as the recent hiring of an experienced CFO for Corporate Development in the U.S. This addition strengthens the management team and enhances the company’s global scalability.
Investors should note the potential regulatory risks, as a significant portion of the company’s contracts are government-awarded. The loss of any major contract could notably impact revenue. Additionally, regulatory changes impacting government procurement could pose challenges.
Over the last three years, the company has demonstrated strong order book growth, ending FY23 with ₹250 crores and recently surpassing the milestone of ₹1,000 crores in its order pipeline. This growth reflects a solid demand outlook and enhances revenue visibility. The company also benefits from a balanced portfolio of geospatial and manufacturing solutions, positioning it well for sustainable long-term growth.