ALLSEC Technology - BPO turnaround story


(Subash Nayak) #1

Few month back, while observing ALLSEC Tech hitting 52 week high week-after-week, I was not able to understand the logic behind it. Now I find out why it is moving northward. PN Vijaya has nicely explained the same in his latest multibagger story. A direct copy paste job from

Vijay told CNBC-TV18, “ALLSEC Technologies is squarely a midcap IT company in the Business Process Outsourcing (BPO) space and it is remarkable turnaround story. They have about 3,000 odd seats spread over seven domestic centers and overseas and they provide BPO services to almost all the verticals - Banking, Financial Services and Insurance (BFSI), telecom, healthcare etc.”

He further added, “The company had not been doing well, it was in the loss. But they have done two very important things in the last 12 months, one is they have rationalized the cost base and cut down the number of seats quite strongly even if it meant losing some loss making clients, they have pruned down their business in a way. The second is they made a very strong acquisition in California of a company called Retail Capital, which services the mortgage lending and other types of lending in the financial sector to large banks, mortgage institutions etc., that came in with a strong top-line and strong bottom-line.”

“As thing have proved out it has been a great boom for this company. All these good things are getting factored into the consolidated earnings of Allsec and for the year as a whole I expect Allsec to have a turnover of about Rs 340 crore or so and decent profits of about Rs 17-18 crore.”

“You must remember the share has gone up a little bit because people are sensing a strong turnaround in this company. The share trades around Rs 70 plus, but even there I think it is a very attractive buy and it can go all the way up to Rs 100 in the next 12 months without too much difficulty.”

“It is a low volume stock, so anybody can put out some news and turn the stock around. Operators can have a field day, so one should remember that it is a low volume stock. Second is too much of its fortunes are dependent on its California based subsidiary. So if anything goes wrong there that will have a terrible effect on the Indian parent. These are some of the risks on the stock.”


(Prashant Dubey) #2

Hi,

I had a small position for some time averaged at 35. Investment basis at that time was cash was close to market cap. I expected Company to turn around in few quarters, but that did not happen and they continue to made losses. I exit the counter in nov at 56, before knowing this new story and before stock hit 52 week high of 82 :-(.

Thanks


(Ankit Gupta) #3

Hi Subash,

I have been tracking this stock from 30 - 31 levels but haven’t looked at it in much detail… People have been sensing a turnaround in this company after the past 2 quarters. Carlyle has 27.65 per cent stake in the company which they bought in early 2007 at a very high price around Rs.260 levels. The major issue with the stock was its fixed price contracts and now as per reports and news those contracts are completed. Also, the acquisition of new Californian subsidiary has boosted its profits. We should dig this company more and it can be an interesting pick.


(Anand) #4

The company has turned around again after the honeymoon with Mortgage business is over. It had to re-invent itself again and make changes to post this turnaround. Only time will tell whether the turnaround is for real this time. Keeping fingers crossed.

  • Company posted consolidated EPS of Rs. 2.55 for Q1 2015-16
  • Reported higher sales
  • Reported good profits
  • No more mortgage business / only ITES/BPO
  • Ashish Dhawan exited the stock in the last 2 weeks
  • Carlyle still holding on
  • Philippines business reports profit

Note: I hold this stock from lower levels


(Pratik) #5

Hi @ansii77 please let us know what is the source of closure of the loss making Mortgage business?
I couldn’t get anything in this regard except for absence of mortgage business numbers in quarterly (Q1 and Q2 FY2016) numbers. Is there any explicit announcement in this regard?
Thanks


(sri krishna bhutra) #6

Hi Pratik,

There wasn’t any official announcement as far as I know. Though I had a talk with the management over the phone and they agreed that the mortgage business has been closed.

Disclosure: Invested from lower levels


(Pratik) #7

Hi @inteliinv, thanks for your input. One key point here I want to highlight is following -

Query > I understand that Chennai has the largest number of seats amongst all offices (~ 2,800) followed by Manali (~ 600 seats) and US Office (~200 seats). Given the flood situation, how are they servicing current client base and if there is any reduction in business. If yes, what is the extent of that??


(Pratik) #8

One more alarm - I called their Delhi and Chennai office number (mentioned on their website) a while back. Chennai office number did not connect, which was expected!!
However, to my surprise Delhi office number was a wrong number and in fact the call recepient also mentioned that he is getting calls for Allsec since few days!!


#9

I think this stock is best avoided like most of small cap IT/ITES companies. You don’t need to over analyze this and company may be trying to do right things.

But ITES market has become hyper competitive and smaller guys have strong niche they can not make money.

e.g. Take solution has found a niche and trying to reinvent itself. Market seems to like it. But even there we will need to see if they succeed.

Companies who could not grow in hey days in last 25 years have very little chance now unless they have a strong niche.


(Pratik) #10

All, please note that was able to connect with their Delhi office and understand that business is going concern…


(Anand) #11

Check the segment-wise results…


(sri krishna bhutra) #12

Had a very generic talk with the Company Secretary Mr. Mohan. It wasn’t difficult to reach him and he sounded pretty positive about the business prospect. Below are the details.

Q. Scale of disruption in the normal business functioning due to Chennai rains
A. No major disruption. Out of three divisions two were working completely fine. In one division there was very minor disruption. Just that the employees were not able to report during the daytime which had very minor effect on the domestic payroll business. International business was doing ok as people in night shift were able to report. Due to insignificant disruption no notice was given to BSE/NSE.

Q. How is the business doing? Reasons for the turnaround?
A. The business has improved at both domestic and International fronts. The 2 international subsidiaries have also turned around and reporting profits due to addition of clients.

Q. Sustenance or improvement of earnings going forward?
A. Company has added clients at both foreign and domestic front. The business is doing good. In quarter 2 there was other income of 5Cr. due to tax refund which of-course won’t be same for Q3.

Regards
Krishna


(Vivek Kumar) #13

Allsec maintains payroll for Accenture India(I work for the company). Payslips, promotion letters and bonus communications were processed on time. So,the operations had minimal impact and what Mr. Mohan says about Chennai rains impact seems to be true.

Accenture has a healthy relationship with Allsec and I have witnessed them working together for 7th year(minimum).

Not invested in Allsec.


(Anand) #14

Another good quarter from the company…

Link to the results: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/51FFD844_CB2C_4863_94CC_2B13147C5035_162133.pdf

  • Standalone Q3 sales flat
  • Standalone Q3 PAT down as other income reduced from Rs. 2.78 crore in Q2 to Rs. 1.03 crore in Q3 and also Rs. 64 lakhs provisioned for MAT in Q3
  • Consolidated Q3 Sales up QoQ from Rs. 55.29 crores to Rs. 57.46 crores
  • Consolidated Q3 PAT down to Rs. 6.98 crores from Rs. 9.14 crores in Q2, with other income down from Rs. 4.33 crores to Rs. 2.08 crores and provision of MAT of Rs. 64 lakhs in Q3…
  • Consolidated 9 months EPS at Rs. 13.12 as against negative EPS of Rs. 9.44 in last year…
  • Employee costs increasing on a consolidated basis, shows more ramp up done in overseas subsidiaries…

Note: I hold from lower levels…


#15

After many false starts this seems to be on turnaround finally! It could surprise if then maintain run rate of the last few quarters. I built up small % allocation after having shocked to see near these levels. Used to track it and then they bought mortgage services biz. That boomeranged which has been cleaned up now. it used to handle payroll for my previous employer.


(Satya Prakash) #16

I am confused. Why it is showing Feb 12 as date posted!


(Satya Prakash) #17

What is the current status of the business? Is it a buy?
I am looking at it form some time. Promoter stake has increased.
Sales was increasing but profit was not. Now profit is also increasing. So, on sales front, it is not all of a sudden.

Do anyone know the reason for recent profitability?

Cash generation is a problem.
Return ratio is not good. Actually very bad.
Recent strong run-up can cause strong correction in bad market like these days (Brexit).

So, need to know the reason for better profitability and future outlook. Without knowing these buying the stock is more on risk than gain.

Why its reserve is going down? Where it is deploying its money?


#18

Ok so you want others to respond to your basic questions? Have you gone through FY15 AR? If yes, what is that you did not understand? Best is to do some analysis and ask questions.

What do you mean by this? [quote=“satya61229, post:17, topic:1105”]
Recent strong run-up can cause strong correction in bad market like these days (Brexit).
[/quote]

If everything was good like cash flows, return ratios etc, why would anyone call it a turnaround candidate? If you want to build conviction, read MDA of AR Fy15 at least. I felt like they were thumping table and saying strong growth is ahead and they backed it up by increasing stake by 5% during Q4.


(Satya Prakash) #19

This thread was started long back in 2013. So, many things must have changed. That is why i wanted to know more from those who is still tracking it .

If after recent run-up in price, it gives even not so good result then strong correction is inevitable, In 2013, result was good but not maintained further.

My post above is informative. It raises many issues and gives observation. Not like, ya i agree with whatever is written. Far better than your post above.

Note : I don’t hold this stock and thought to give it a miss.
I own Trigyn Tech and that is looking far better. There also cash generation is not good but many things are far better. PE is also cheaper. Recent news are all good. Size is three times revenue wise. Therefore, if I need more of small IT companies then better to add in Trigyn than dabblibg in Allsec according to my conviction.


(Hitesh Patel) #20

Co website had got a presentation post q4 fy 16 results for those wanting to look more into it and get a feel about how business is going.

disc: invested as an opportunistic bet.