Scandent Solutions' valuation is at par with that of Satyam and HCL Tech.

Scandent Solutions, the infotech and business process outsourcing services company which took over the IT services division of SSI Ltd last year, has listed at around Rs 200 a share.

SSI shareholders had been given one share in Scandent Solutions for every share held in SSI, as consideration for the demerger of the IT services division. This had led to a fall of Rs 118 in SSI’s share price - from Rs 167 to Rs 49 - on the record date set for the demerger.

In other words, the IT services part of SSI’s business was valued at around Rs 118 a share. With Scandent now trading at Rs 204, those who remained invested as Scandent shareholders have made a decent return of close to 73 per cent.

In the same period, the CNX IT index has returned less than 15 per cent. What’s more, SSI’s share price itself, which now includes only the education business, has risen by around 20 per cent.

Based on Scandent’s annualised nine-month earnings, the current stock price gets an absurdly high valuation of over 50 times. But this was because of a loss in the first quarter.

Profits have normalised since, and averaged Rs 2.7 per share in the second and third quarters. On an annualised basis, this works out to an EPS of Rs 10.8, and assuming a higher than industry growth of 35 per cent next fiscal, its FY06 EPS is estimated to be Rs 14.6 per share.

The current share price, therefore, is around 14 times FY06 earnings, in line with companies such as Satyam and HCL Tech, which are not only much bigger in size but also have a longer history of profitable growth. Scandent’s growth, on the other hand, will depend to a large extent on successful mergers and acquisitions.