Buy This Small Cap IT/ITES Stock For Solid Gains
The industry is expected to see good growth
According to Sharekhan, the market for specialized testing services is expected to overtake the market for traditional testing services. Software testing accounts for 6% of the total software development budget and has plenty of room for growth, given the rise of agile and DevOps application development methodologies. “According to industry estimates, the software testing market size remained at $43 billion in 2020 and is expected to register a CAGR of 7% from 2020 to 2026,” the brokerage said.
Demand, the main driver of growth
Increased customization of software and growing demand for automated application testing services are the major drivers behind the strong growth of Specialized Testing Services (STS). “We believe STS is expected to outpace the traditional testing services (TTS) market, driven by increased demand for next-generation testing services (mobile, security, UI/UX, RPA testing, RPA in testing, and AI in testing). New-gen testing is expected to grow at a CAGR of 13% in fiscal years 2020 through 2026.
Expleo’s outlook is improving
Sharekhan believes that a strong BFSI customer base, global delivery capability and favorable demand in the BFSI industry would help the company drive revenue growth in the future. “Furthermore, Expleo Solutions has invested in creating an intelligent quality platform that covers the automation of the overall Agile and DevOps software delivery process, security, performance, environment and data, as well as as quality management and test automation,” Sharekhan said.
Strong performance in the first quarter of fiscal 2023
Expleo Solutions Limited’s performance in the first quarter of FY23 was strong with higher than expected USD revenue growth of 9.4% QoQ and higher margin. Rupee revenue grew by 12.2% YoY and 44.8% YoY to Rs. 127 crore, driven by strong growth in verticals (except Cards and Payments) and Zones geographic (outside Europe).
North America revenue increased
“We highlight here that North America’s revenue share increased to 12.8% (from 4.3% in Q4FY22) as a revenue contribution of Rs. 8 crore (contributing over 57% of sequential revenue growth of 12.2%) from the acquisition of Lucid Technology,” Sharekhan said.
Investments to help increase non-BFSI space
According to the brokerages, these investments would help it increase its presence in non-BFSI areas such as automotive, aerospace and manufacturing. Management emphasized that the merger of all Indian entities of the Expleo Group under Expleo Solutions would strengthen the company’s new capabilities (engineering services), its sector portfolio (aerospace, automotive, defense, industrial, media and entertainment), market expansion, cross-selling and improving sales.
Expleo Solutions is well positioned to generate strong growth in fiscal 2023, given its strong offerings in niche areas, the continued addition of new logos, a healthy deal pipeline,… good prospecting for customers and additional revenue from the acquisition. Expleo Solutions cash levels stood at Rs. 148 crore, implied 10% of current market cap.
Strong upside potential of nearly 23%
Sharekhan saw almost 20% upside potential in the stock in his report. However, the company’s shares fell 3%, leaving a 23% upside potential for the stock.