Investors focus on 4 digital players

Govt wants to create a digital system post-demonetisation

The government’s continued thrust on digital payments and the creation of a digital system post demonetisation and the Union Budget augur well for a whole host of companies. 

While there are companies in the wallet and payments bank categories, they are unlisted. Investors, however, do have a handful of listed stocks that stand to gain from the digitisation wave, even as their exposure may either be indirect or ancillary in nature. These include Vakrangee, Sterlite Technologies (Sterlite), Quick Heal Technologies (Quick Heal) and TVS Electronics (TVS). 

While their share price has shot up anywhere between seven and 60 per cent since November 8 last year, there are gains to be made in the long-run.

Vakrangee is a debt-free company and, through its strong network of about 26,000 Vakrangee Kendra outlets, plays a key role in financial inclusion. Its focus on asset-light franchise models along with a tie-up with global giants such as Amazon and Aramex will drive growth, as customers can place orders, collect them, return goods and have parcels couriered on Amazon and Aramex at these Vakrangee Kendras. 

Vakrangee provides e-governance solutions (using IT to deliver government services) and also helps banks strengthen their digital infrastructure. 

“It has installed digital signage screens on a pilot basis at select outlets, and going forward expects them to be an additional source of revenue,” says an analyst at Bank of America Merrill Lynch.

India’s only integrated optical fibre cable company, Sterlite Technologies, stands to gain from increased allocation towards Bharat Net programme in the Budget for broadband connectivity through optical fibre. 

It has recently doubled its cable capacity and the higher allocation will further aid its revenue growth in the coming years. It enjoys healthy return on equity (RoE) of 20 per cent plus and analysts expect it to deliver annual earnings growth of 24 per cent over the next two-three years.

Quick Heal provides security software products for personal computers, laptops, mobiles, tablets and enjoys leadership position in the Indian retail segment, with 30 per cent market share. Its strategy to ramp up its smaller segments of corporate and government security will drive further growth as rising digitisation will only lead to higher demand for its security products, and these segments are significant in terms of market size. 

Current valuations of about 20 times the FY18 estimated earnings are lower than its global peers which trade at about 25 times. Continued momentum in earnings growth could push up its return on equity to 16 per cent in FY19 from about 11 per cent currently, estimate analysts.

TVS Electronics provides information technology products, services and also distributes mobile phones. Its focus on point of sales or PoS products and services such as debit/credit card readers, monitors, receipt printer, customer display, bar code scanners, among others, will mean more demand for these products as digitisation gathers pace.