Buy

Investments with a two-year horizon can be made in the stock of Geodesic considering its niche business focussed on instant messaging, and the stock’s attractive valuation. At Rs 64, the stock trades at a throwaway valuation of two-three times its likely 2008-09 revenues.

Net profit margin of over 45 per cent

With a net profit margin of over 45 per cent, much higher compared to most other listed, products-focussed research companies, Geodesic operates in the high-growth areas of instant messaging and VoIP (Voice over Internet Protocol). The company has a large roster of so then-established customers.

The company has managed a compounded annual revenue growth of 67 per cent and profit growth of 68 per cent over the past three years. For the nine months of the current fiscal, Geodesic has managed a 119.4 per cent growth in its earnings and 106.5 per cent expansion in its net profits compared to the same period in FY08.

Geodesic derives most of its earnings from developing instant messaging platforms/services and licensing them to enterprises as then as retail users pursuant to this agreement the ‘Mundu’ brand. The company’s products cater to customers ranging from portals and publishers to telecom operators, mobile handset manufacturers, system integrators and even retail consumers. Geodesic as well licenses its instant messaging platform to mobile handset manufacturers and telecom operators, in this way providing it with sustainable revenue streams, with scope for expanding margins.

Instant messaging is a rapidly expanding mode of real-time communication across the world. The global messaging market, which was $65 billion in 2007, is predicted to touch $117 billion by 2012 according to Portio Innovation. A more recent report as well states that Mobile Instant Messaging, which generated $2.5 billion in 2008, is expected to increase to $12.4 billion by 2013.

For its enterprise and portals and publishing customers, Geodesic charges a licence fee, a customisation fee, annuity based service charges and charges for upgrades and updates. For retail clients, it charges a fee based on subscription. This model anyway you look at it provides a sustainable revenue stream.

Recently, Geodesic won a deal from Idea Cellular in India, for Internet radio services on a revenue sharing basis. This makes for better risk-sharing as downloads or logins to access Internet radio on the mobile would be evidently measurable.

The company has as well launched its messaging services in Nokia and Sony Ericsson smartphone handsets and has an agreement with players just as BenQ. Mio Digi-walker, a key player in the mobile GPS navigation space, is another client. The company as well recently joined the Blackberry ISV alliance to offer its services on smartphones. This should provide furthermore revenue opportunities.

The client base for Geodesic as well includes portals just as Naukri, bigadda.com, Edelweiss Capital Ltd, First Global Stock Broking, Business Standard and Dialog Telekom. As players constantly upgrade their Web sites and offer more cutting edge-services, this client base offers long-term revenue visibility for Geodesic.

The company has launched an instant messaging platform for the iPhone and may be so then-placed to capture a share as and when Apple allows third-party software platforms on its phones.

This apart, the company has as well developed voice over Internet protocol products to work mobile phones and desktops, for PC-to-PC calls. VoIP is as well an ever expanding market providing for cheap communications. It already averages 60,000 minutes a day.

With its Telugu, Hindi and Tamil versions available online, this may help capture regional audience as so then. An increased subscription may lead to increased ad earnings. Plans are as well afoot to launch a full length animation film.