Sankhya Infotech – Defense Simulations & eLearning Major


Background: It’s a known fact that the next phase of growth for Indian IT Industry would come from product based companies as India climbs up the software value chain. But even in this space we should try to get into companies with some niche skills. Here we will try to understand a company which has a very strong and futuristic skill set and is one of the leading companies in the Defense and non-defense Simulations and training. Interestingly the company has very significant fact file as discussed in the section below.


The Company: Sankhya Infotech is a leading player in the space of Defense and Aerospace and also has solutions catering to BFSI and Education. The company is one of the better names in the space and has grown at a scotching pace of around 28-29% CAGR (topline) for over a decade – a no mean feat. Still the company fell into oblivion because, in a pursuit of continuous growth the company changed its business strategy in FY12 and got into services and invested heavily into people as they had to opt for near-shore and on-shore development which obviously resulted in severe margin erosion. A few other factors like one of their bigger customer – Kingfisher Airlines going kaput and severe slowdown in EU and US did not help either. Company’s operating margins that were in mid-thirties at that time crashed to low single digits. That is when the management decided to drop the strategy and start focusing on operating margins by offshoring its positions. The previous strategy was dropped in late last FY and the turnaround has started from this FY and in a few quarters the company’s operating margins are expected to improve dramatically (ofcourse there could be slight volatility for a few quarters but the trend will be up). Another very important point to note is that though the company’s OPM deteriorated, company’s cash generation has always been excellent. Infact, Sankhya’s cash generation is way superior to its more celebrated peer Zen technologies (which is in same verticals though different kind of products). The company counts Indian Army, Air Force, Indian Railways and defense PSUs such as Bharat Electronics, DRDO as its major defense customers and have clients in US, France and UAE and Bahrain in the space.

The promoters hold around 24.25% stake in the company along with 9.1% that is securitized with IDBI bank. Another 18.3% stake is held by the parent company of HBL Power (another major listed entity). The company has well written Annual reports and investors should read them all to get a better understanding of the company. Yes the company is facing real challenges but now the times are improving for it. Sankhya has always been a good executor and has also managed to bag some very prestigious contracts amid strong international competition based on its superb execution track record and technical expertise. Last year it had won the CBSE online education project that aims to provide online education to over 11.5 million students. With the present government’s thrust on Defense and e-governance, Sankhya is gearing up to garner a large pie of the defense opportunity that is coming up and is bidding wisely.

Few Interesting Facts :

  • Sankhya was the first company in the world to have launched the web based simulation for the Aviation Industry.
  • The company’s e-learning product is used by more than 50% of all bank employees in India.
  • Sankhya is also the first indian IT company to sell a software product to American Defense Organization.
  • The company has successfully completed the execution of the prestigious Mumbai Rail Vikas Corporation Simulation project. Dubbed as the most complex rail network in the world Sankhya successfully completed the simulation project for MRVC that would help the corporation prepare train schedules for improved productivity and efficiency of rail assets utilization.

Valuations: Sankhya available at around 29cr market cap has a turnover of over 181cr, is therefore trading at just 0.17x its FY15 turnover and at just 0.4 times its book value. The stock is also available at less than 5 PE based on FY16 earnings. The company for H1 has delivered revenue of over 74cr with EPS of around 2.78rs. The company gains heavily by weakening rupee as is evident from its other income and therefore, the gains could further go up in wake of Fed’s rate decision. The stock Sankhya is grossly undervalued, especially if one considers that Zen Tech is trading at 5 times its book value and over 8 times its FY15 revenue. The valuation gap is extremely huge and is expected to narrow down significantly which itself could turn it into a huge multi bagger. Most importantly Sankhya’s cash generation is excellent and is way superior to its peers like Zen Technologies. Whereas other product companies are trading at astronomical valuations, a niche product company like Sankhya is available at dirt cheap valuations. Though as of now its more of a technical than fundamental bet. It has debt of around 8.7cr.

Technicals: The stock is not just available at juicy valuations but is also technically “very strong”. The stock bottomed out a few months back and has been on steady uptrend for last few months. But in the last couple of weeks, the uptrend has gathered huge momentum and the stock had bounced from short term supports and the bounce has been so strong that it gave a breakout by taking out its swing highs on huge volumes. More importantly the stock is on verge of another massive breakout on yearly charts and the stock will now gather strong momentum on upside.

Yes, the business was facing challenges but FY16 (especially H2) and FY17 is expected to be landmark years when the company, not only will continue on its growth trajectory but the margins would improve “significantly” too and their domestic focus would start bearing fruits. And let’s not forget that since there are such challenges that is the why we are getting a nice product company at such juicy valuations (0.4Xbook value, 0.17x sales, 5Xfy16 PE). Sankhya is a nice product company that generates strong cash flow, is available at rock bottom valuations and we are catching it at the cusp of its turnaround and importantly the theory is backed by some solid technicals.

Disclaimer: It is safe to assume that I may have some vested interests in the stock. Also, the above stock view is my personal view in individual capacity. For rest, please look at the About page.



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101 Responses to Sankhya Infotech – Defense Simulations & eLearning Major

  1. Value Investor says:

    Looks Promising. WIll research about it furthur
    Thank You Ace

  2. Akshay says:

    will look into it.

  3. srinivasb90 says:

    Ace, as per latest shareholding pattern, promoters holding is 36.75%. Beaver engineering & holdings hold another 18% shares. No information regarding HBL holdings. Numbers you have mentioned regarding shareholding are little confusing for me. Kindly help in this regard.
    Thanks in advance.

  4. Jp says:

    Thanks for the new one…!!

  5. srinivasb90 says:

    Ace, as per latest shareholding pattern, promoters holding is 36.75%. Beaver engineering & holdings hold another 18% shares. No information regarding HBL holdings. Numbers you have mentioned regarding shareholding are little confusing for me. Kindly help in this regard.
    Thanks in advance.

  6. Mukund says:

    Hi Ace there are old complaints from employees. Don’t know how to analyse same.

    • complainants from employees could be motivated. a lot of disgruntled employees take an unfair advantage by posting such things online..even whirlpool tech mahindra etc have that… pls dont post any URL here.. have removed it

  7. Aravind says:

    Promoter holding is low: 24.25%
    Though the company is reporting repeated profits, it is not paying out dividend. It never paid in the history ever.
    Its OPM was in 25% range, now its in 9% range.
    Borrowings have only been increasing, not reducing, they borrow for what? No incremental costs in this type of business right, once setup they last forever the equipment or computers or models in education software?
    Except in 2014 they never generated huge cash from operations that can generate dividend giving prospects.
    Note: All statements are based on past. Looking ahead we can see batter fortune or not depends on the people

    • promoter holding is around 33% with 24.25 plus more than 9% securitized with IDBI, please read the stock story properly. Dividend was paid in 2008 and why should the dividend be paid now? when the fiscal position of company is not great, profits should be ploughed back to business not please investors which include the promoters too. if you want dividends go to dlf which is thousands of crores of debt but they dont forget to reward themselves by paying dividends – probably you should be in those kind of company. The company OPMs have been in mid thirties in mid to late last decade, please read the last 10 yrs ARs. borrowings would obviously increase since its dealing with govt. companies a lot and therefore, receivable will increase. This is expected and not abnormal and this is seen in most of the companies dealing in the sector but what is not seen is the positive cash flows which Sankhya is able to generate (look at zen or vakrangee e.g.). also who said R&D have fixed cost.. ??? Also, you are completely wrong when you say that company has not had good cash flows except in 2014. Clearly you are not aware of cash flow statements. I would advise you too take a course that was put up on this blog to improve your understanding of finance.

  8. kerry82 says:

    Ace why hasnt it reached its book value of 60 since many years now? It had good order book in 2010.

    And dont you think being a small firm its all over the place – elearning, defence simulation, online exam conduct facilities. Very unrelated niche, each big and complex enough for a separate company.

  9. Manoj says:

    Very nice observation… thanks for sharing…

  10. T.DHARANI says:

    thank Ace for your new pick

  11. Vineeth Nair says:

    Wonderful finding. Also, tell us how to get it when it opens as it’d be on circuits for the next few days.


    An excellent pick.

  13. Frederick Dsilva says:

    thankyou so much Ace.

  14. Ram says:

    low promoters stake

  15. shreeux says:

    Thanks for another M.Baggers..!!!

  16. Sanjay says:

    Tomorrow upper circuit 🙂

  17. techiechartist says:

    The stock is explosive on the charts. its equivalent to cybertech at 28 levels….

  18. bingo says:

    sir even tomorrow the limit of cupid is same.. 😦

  19. pranil says:

    Sir, half yearly sales are down yoy; dont you see anything wrong here? will they have increase going forward?

    • yes, what the expectations are…one account got postponed to next quarter..also a couple of quarters should not matter when such a long term consistent growth is coming… its not just a re-rating candidate but a growth candidate

  20. vimal says:

    Hi, ur view on Porwal auto components?

  21. SP says:

    Thank u for Pressman.. Just hope it goes beyond this resistance.. several times has it fallen from these 42 levels.. Thank u nevertheless 🙂

  22. Sampat says:

    More than 7 lacs shares for buying pending in Sankhya . Just incredible. Shows the tremendous following & confidence, investors have in ACE.

  23. AJ says:

    My only problem is the entry, given the circuit? Not sure, If I will get a chance tomorrow as well? Anyways thank you Ace.

  24. AJ says:

    Also in case of SKM Eggs, do you still think it may be a value buy at these levels, given that the 2nd half of the year is generally more stronger?

  25. MOHENDRA ROY says:

    Dear ACE Sir,
    Your View on NEO CORPORATION.

  26. Niknike says:

    Dear Ace,

    thank you for your new pick and congratulations for the circuit. A few pointers on this new stock :
    1) The company has not yet published FY14 annual report
    2) AGM has been postponed.
    3) Company had a debt of 30 crores at 31/3/2013. No update availlable on debt position in latest quarterly results. Generally IT companies having debt is a danger signal . eg. Zenith Computers, etc.

    Trust you have looked at the above. Best wishes.

  27. Sanjay says:

    Poor retail investors never get a chance to enter due to continuous circuits. 😦

  28. Nsriniv says:

    I observe in your research report that ‘importantly Sankhya’s cash generation is excellent and is way superior to its peers like Zen Technologies’. How do I find this aspect in their Q2 financials. Pls guide. Moreover is this cash generation will sustain.

  29. Ashutosh says:

    Hi, Ace,
    Yesterday the UC was at 34.10. Today i.e. on 03/12/2015 too, its UC is at 34.10.. How Come??

  30. kishoreg4u says:

    Hi Ace

    I am new to your blog. I studied the company myself & found this to be an excellent pick. Thank you. Have just once concern: The promoter stake has dropped from 37.68% in Sep-14 to 24.25% in Sep-15. If we consider the IDBI securitisation of 9.1%, that still leaves us with a drop of 4.33% YoY. Do you know the reasons for the same? Do you think this raises questions on the company prospects as it looks like insiders are selling?

    • do you know cupid’s promoters sold stake at around 38-40 rs… you know about page industries promoter selling (how long they have been selling)?…sometimes, these indications are not entirely true and that’s where research comes in, which ultimately builds conviction.

  31. Ram says:

    I’m not able to buy, looks like UC… can you please advise

  32. NK says:

    There is this long queue waiting to buy this script after you posted the reco mate…

  33. vishnu says:

    ace sir,
    I bought few stocks around 300@34.1Rs/- …Planning to add more…By the way i recently came to know about this Blog…You are amazing sir…Here onwards I will follow your Recos…

  34. Manish says:

    Sir , can you suggest how to place the order to buy Sankhya infotech. Apparently, I place order but order gets cancelled. Market order, limit order, premarket limit or market order etc.

  35. vishnu says:

    oops..sorry sir…I don’t know

  36. sam says:


    For some reason I am not being able to authenticate the existence of this company. I only see news materials on their website. I could not find anything published anywhere else. I also noticed they mentioned Virtra as their partners. I know someone working there and he has no clue about it. Also their name is not mentioned on Virtra’s website. Can you share a few articles which mention that it has products and those products are being bought by customers?

    • your first line of comment is a little funny 🙂 … anyways on a more serious note, you should search properly i think …not sure how can someone miss so much information that is available on it….try to search on NTSA and probably there’s enough information

  37. MNR says:

    Dear ACE sir,
    Your next pick this month or next month?

  38. Jay says:

    I am first time follower and small Investor. Sankhya looks promising in long term and am lucky enough to got few, thanks Ace for nice recommendation. WIll hold for long term.

  39. RAJ says:

    Do you think anything wrong with turnover down in the first two quarters as compared to last year ? What could be reasons ?

  40. kishoreg4u says:

    Hi Ace, your view on Allsec Technologies?

  41. Puru Ji says:


  42. Abhishek Singhvi says:

    Dear Sir,

    Please clarify sankhya is getting revenue of Rs 55 cr annually from defense export but meagre revenue of just 17 lacs from defense sector domestically.
    Why company not able to compete or not competing Zen Tech who is getting good domestic orders from Defense.

  43. Aditya says:

    Hi Ace ,
    I am new to the Blog . An interesting stock,
    can u explain why indian revenues are so low ( 3cr in FY15) if they cater to half of indian banking training requirement and also to defense establishments. what am i missing?
    there has been a change in auditor and also idbi has sold some shares to cover dues. seems they are in some cash stress despite having decent CFO . why?
    there shift from onsite has led to decline in employee cost but they are also loosing revenues. so are they loosing clients also due to this shift?

    can u also share ur view on these stocks on CMP, was not able to find them on the blog
    Ashiana Housing, Kitex, Poddar developer, Suven Life, Pokarna, Ramkrishna Forging .

    Can i Buy Cupid , Prima , manglam drugs , spenta ,Vidh iDyeStuff at cmp. ?

    Thanks and regards…

  44. Kamal Saraogi says:

    Hi Sir,

    What is your observations and comments upon Sankhya Infotech Quarterly? Is this a Buy or Hold?


    • buying or selling is your own decision.

      • Kamal Saraogi says:

        Sir, I do agree with your reply, It was your recommandtion and many ppl bought depends on your artical, my average cost is Rs. 42
        Hope you would have look into results and surely will update your view..

        • i dont recommend anything, just give my views. also if someone decides to buy at 60% higher cost then when the stock story was published it is expected that the person knows the pros and cons of doing it and has done research on the subject. also if someone buys/sells based on someone else’s views then that person is not fit for direct investing in the stock markets and should go via the mutual funds route.

  45. pruthvi says:

    sir, please post your view on the sankhya results.

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