Recommendation Review: Helios & Matheson Information Technology

Over the years, Helios & Matheson Information Technology (HMIT) has acquired a number of companies in order to strengthen its presence either geographically or in the verticals. Although this has led to rapid expansion, it has come at a cost. These acquisitions were funded using debt. It thus had financials that were poor in quality as compared to its peers. But there was an opportunity in the situation, and we had therefore recommended investors to buy HMIT at Rs 52 in the ‘Low Priced Scrip’ section in DSIJ Vol. 28, Issue No. 14 (dated June 30, 2013).

Compared to its peers, HMIT has a debt/equity ratio, lower net profit and lower asset turnover. But with all these factors tending towards its healthy peer group, there was the transformation to ride on. HMIT has made adequate infrastructure investments for it to not require enhancements for the next two years, thus ensuring an overall improvement in financials over this period. The depreciating rupee is definitely one of the major factors for the appreciation in the pricing of HMIT.

Another reason is the announcement of HMIT’s results for the quarter ending June 30, 2013 (Q1FY14). In the quarter, its revenues saw sequential growth of 9.27 per cent to Rs 115.31 crore. Along with this, it also saw an improvement in its net profit margin by 15 basis points to 8.92 per cent. This too added to the appreciation. Since the stock has yielded massively since our recommendation, we are of the opinion that the level is correct for investors to exit from the stock.