7x - that is the return today’s company has given its investors in a mere year, and there might just be juice left in this story!
Having been around since 1997, AurionPro Solutions is a lesser-known IT industry player that didn’t start successfully - in fact, it paled in comparison to its peers.
For years, AurionPro recorded a 15% YoY revenue growth and EBITDA margins at 14%, while peers boasted a 25% YoY revenue growth and EBITDA margins above 30%. It is no wonder the company was valued at a mere 6x 1-year forward PE, while peers traded around 15-20x!
To put an end to this, the company identified 2 major areas where it needs work:
It needed to create more patented technology, instead of being just an IT services company
It needed to enter into forward-looking sectors for business
Thus, in FY18, began the turnaround of AurionPro into a multi-bagger IT stock - from being unheard of to becoming a sector favourite!
1. Creating Patented Technology
Creating the tech from scratch and patenting it has 3 benefits:
AurionPro becomes irreplaceable to clients that buy the product, resulting in long-term contracts, as opposed to just offering an IT service created by someone else
Margins on a patented product are in the 25-30% range, as opposed to the 15-20% in regular IT services, making the former a lucrative bet
The recurring need for improvements and maintenance on patented products (a need only AurionPro can fulfil) results in a steady flow of revenue
Until FY18, the patented products and IT services revenue split was at 20% and 80% respectively, but AurionPro decided to make some moves.
Cut to FY24, under the guidance of Ashish Rai (who has been promoted to CEO), AurionPro presents itself in a whole new light, with over 50% of its business coming in from patented products and its allied services!
2. Entry Into Newer Industries
Until FY18, the company exclusively dealt with the banking industry, tending to the technological needs of over 200 clients, comprising the largest banks in Asia and around 10% of its clients being Fortune 500 companies - but AurionPro wanted to be present in other sectors too.
In this pursuit, the company chose a few new segments:
From not existing 6 years ago, this segment labelled Technological Innovations now makes up 50% of revenues, with it growing by 50% YoY for the last 2 years (while the Banking segment has grown by 15-20% YoY in the last 2 years)!
The result? The last 2 years have been the best in the company’s financials across the last decade, showcasing a 33% YoY average growth rate in revenue, and margins went up to 22% - finally catching up to the peers it lagged behind before.
Even from a valuation standpoint, the company now trades at a 30x 1-year forward PE, showcasing a massive re-rating of the company’s image in the eyes of the investor.
With the company’s Rs. 900 crore order book (1.4x the 9MFY24 revenue), with a 40-60 split between banking and tech innovation segments, the future of AurionPro has only just begun, with the expectations of a 35% CAGR growth income over the next 3 years.
So, while you may have lost out on last year’s gains, you may want to keep a close look at this stock now!