Haywood Securities analyst Pardeep Sangha is currently in India, where he has visited DataWind’s (DataWind Stock Quote, Chart, News: TSX:DW) headquarters in Gurgaon, outside of New Delhi, and the company’s manufacturing facility in Amritsar, Punjab.
The analyst says his trip, which also included a sit-down with CEO Suneet Singh Tuli in New Delhi, a site visit to a third-party outsourced warehouse and shipping facility, and a visit to a mobile retail location that resells DataWind products, has validated his belief in the company’s growth opportunity.
The analyst says he sees significant growth potential in India and thinks DataWind is well positioned to be a leader in that market.
In a research update to clients yesterday, Sangha maintained his “Buy” rating, but raised his one-year price target on the stock from $5.00 to $6.00, implying a return of 179.1 per cent at the time of publication.
Sangha notes that DataWind is now the second-leading tablet vendor in all of India, a place where the penetration of such devices is still quite low.
The analyst points out that the company has now soft-launched with Vodafone in India, shipping its UbiSlate tablets with a free year of internet access on that company’s wireless network. Sangha says he believes this deal could have a greater impact on DataWind’s growth than its deal with Reliance did.
Using Reliance’s data access network, DataWind has already sold 600,000 devices. Reliance is India’s fourth largest telecom service provider, with about 120-million subscribers. Vodafone is the country’s second largest, with a base of approximately 188-million. Sangha says it is his understanding that DataWind is prepping to launch with Vodafone through aggressive marketing on multiple TV home shopping networks and through Vodafone’s more than 10,000 retail outlets.
Sangha is forecasting 91 per cent revenue growth for DataWind in fiscal 2016, which ends March 31, 2016, and 64 per cent revenue growth for fiscal 2017. He believes that by fiscal 2018, the company will generate Adjusted Ebitda of $10.9-million on revenue of $143.3-million.
The analyst says he believes DataWind is undervalued compared to its peers. He addressed the reasons why the stock is down 55 per cent since its IPO.
“We believe DataWind’s shares have underperformed since debuting on the TSX because the company’s transition from a developer of “cheap” tablets to a provider of low cost internet access has taken longer than investors had expected,” says Sangha. Since the IPO, the company has created carrier partnerships, built a vast retail distribution network, and generated market pull through several major TV home shopping networks. We believe DataWind’s ramp in unit shipments and revenue are strong indicators that there is a market for its products and the company has proven out its business model.”
Shares of DataWind on the TSX closed today up 6.5 per cent to $2.29.