KLG Systel Limited (KSL) is a leading software company in India providing IT-centric, organization-life-cycle software solutions, consultancy, support and training and services to organizations particularly in the process, power, manufacturing and infrastructure sectors. We believe KSL is well positioned to cater to the distribution market with upcoming increased demand from the Distribution Automation business in the country.

In the power distribution space KSL has products like SG61 and Vidushi in the supply side management and Connect Gaia in the demand side management of the distribution automation systems. We believe Energy management and proper energy accounting will attract lot of investment in the coming years both from the power utilities and industries. On the back of incentive based return given to utilities for the reduction of AT&D loss and gaining of popularity of the distribution franchise models in the country, we believe the power system revenue of the company would grow at CAGR of 121% over FY07A-FY10E. At the same time with a good diverse domestic industrial client base in hand particularly from manufacturing and Infrastructure space the business life cycle systems revenue of the company would also grow at a healthy CAGR of 47% over the same period. The stock is trading at attractive valuation of 7xEV/EBITDA on FY10E. We recommend a BUY on the stock with a 12 month target price of Rs 986, which would value our Target Price at 8x EV/EBITDA on our FY10E.