Quick Heal Technologies (QHTL) is a dominant player in the growing Retail IT Security
software market in India with a market share of 30% and an active license user base
of 7.13mn. ~87% of its customers are retail clients while the balance is made up of
enterprises and government institutions. The company has laid the foundation in terms
of product development, creating infrastructure for distribution and built a brand to
further grow its overall business.
Leadership position in growing Retail IT Security market: The Indian IT Security
software market is estimated to be at Rs1,500-1,800cr in 2015, of which, the retail
market accounts for ~Rs600-800cr. The retail market has grown from ~Rs400-600cr in
2013 and is expected to post a CAGR of 20-25% over 2015-17E on the back of
growing number of internet users. QHTL is best placed to benefit from the growing
industry on the back of its brand visibility along with its wide distribution reach.
Strong distribution network with good brand equity: Despite facing competition from
international as well as domestic players in India, QHTL has been able to successfully
grow its business and establish a strong position across India on the back of its 19,000
retail channel partners. QHTL has also built support systems that include mobile,
enterprise and government channel partners. The company has historically spent ~10%
of its top-line on advertisement and is expected to allocate ~Rs111cr from the IPO
proceeds (over three years) to further improve its visibility, which in turn, will aid growth.
Debt free with healthy Cash Flow generation for future R&D needs: QHTL has a debtfree
balance sheet and cash balance of ~Rs107cr as of 1HFY2016. Over the past five
years, QHTL is generating strong operating cash flows which have grown from
~Rs49cr in FY2012 to ~Rs77 in FY2015. We believe that the company generates
sufficient cash flows to cover for R&D and technology up-gradation related expenses.
Outlook Valuation: QHTL has shown significant growth over FY2012-15, posting a
revenue CAGR of 16.9% while its profitability has declined from Rs68cr in FY2012 to
Rs54cr in FY2015 as the company was in an investment phase. Investments were
incurred towards new product development for its Enterprise business and brand
On the valuation front, at the upper end of the price band, the pre-issue P/E works out
to 41.2x its 1HFY2016 annualized earnings which we consider decent taking into
account the company’s brand image. Further, the company is confident of it being
able to sustain its growth trajectory owing to its strong distribution network.
Additionally, there is a two-year lead-lag on product development for the Enterprise
business of which the company will reap benefits in future. Thus, we recommend a
Subscribe on the issue from a longer term perspective.

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