ALLSEC Technology - BPO turnaround story


(sumitg04) #81

What would be the impact on Allsec as US govt is trying to place restriction on US companies to move BPO work to outsourcing companies in India.


(Gaurav Agarwal) #82

@Vulture

According to the annual report 15-16 the company has the following capacity

  1. 2500 seats in India - across 3 locations, Delhi, Bangalore, Chennai

  2. 600 seats in Manila

  3. 200 seats in USA.


(Bheeshma Sanghani) #83

Was looking at the Allsec chart and found an interesting unfolding ( not yet formed) Head & Shoulder pattern. After a solid run in prices - the stock seems to have hit a wall. Perhaps its because of the uncertainty in the US outsourcing policies. The chart looks bearish to me and would be an interesting short opportunity if the pattern fully forms and there is a decisive downward break. I am long on this stock because payrolls is a good business to be in. But watching the pattern unfold for educational purposes.


(Naz) #84

Is it possible to short a stock (for more than intraday duration)if there are no options/futures on the stock ?


(Bheeshma Sanghani) #85

I dont think so. But again, i have never shorted a stock or a future/option before in my life so wouldnt know. Maybe the more experienced can guide us here. I am also interested in knowing whether it can be done


(Rohit Ojha) #86

Hi…I am not an expert on technicals but I think a clear head and shoulder pattern requires a strong uptrend before the start of the pattern, which is not the case here. A good example is syngene in last few months.


(Bheeshma Sanghani) #87

Hi rohit, neither am i! Am hoping that the pattern fails since i am invested in Allsec and find it a nice long term story. However, prices have certainly moved down since my post ( the right shoulder has formed!) and while havent broken the neckline, am not very optimistic that the neckline will hold. also the three triple tops it made before heading down tell me that a lot of bearish views still exist in this business. I use technical analysis purely as a one would use a rear view mirror - to guide me and hopefully avoid accidents.

Earlier i used to get excited upon finding a business that i believed was undervalued and jumped right in without further delay. Nowadays, i do look at the price patterns and if i find that there is a chance of getting in at lower levels, i wait and usually i get a chance ( not always ).

I chanced upon a paper by Andrew Lo ( Yale, Harvard, currently at MIT & the author of a non random walk down wall street) who tested 10 patterns and found overwhelming support for TA. While the methodology he used ( something called kernel regression) is beyond my understanding - he concluded that geometric patterns offer promise & “informational value”. I have since then included pattern recognition in my stock picks. The link to the paper is follows


(Rohit Ojha) #88

Hi Bheeshma,

Thanks for the article but looks too technical :stuck_out_tongue:
Here is my understanding

  • Head and shoulder is a reversal patterns, meaning the pattern plays out nicely post a strong uptrend. Allsec was in an uptrend but it had spent some time consolidating around 250 levels. However, the current bearish sentiment on IT does make a case for a fall.

  • Volume during left shoulder rise is higher than the volume during rise around the head. Not so clear in this case.

  • Breakout should be with high volumes. Lets see, the shape does look like H&S and if it plays out, the target would be around 260 odd (distance from neckline to top of head is about 100).


(ffaizan) #89

I am not sure about the technicals but isn’t the company coming out with good results quarter on quarter.
Isin’t there enough fear about IT sector as a whole. This appears to be an example where stock appears to be down not due to fundamentals but due to sentiments against the sector. Isn’t the valuation of less than 10 provide margin of safety.
Isn’t this time to add more on dips if the stock remains fundamentally strong. Please advise what I am missing here.


(Bheeshma Sanghani) #90

Hi great questions! However we dont know yet if the prices are on their way down. Only once they break the neckline will we be able to opine. For all you know they make a u turn and head right up.

From the fundamental pov as u pointed one can take advantage of the temporary weakness in prices and add to their positions.


(Mridul) #91

Just a quick point on fundamentals. It is no doubt in good space, but for next 3-4 qtrs there will be stress on bottomline as they will have to start paying taxes, which they were able to save due to accumulated losses. Also, INR strength is also going to hurt them (like any other IT company). This is a good comeback case without doubt. But, sectoral headwinds are pretty strong at the moment. And this bottomline stress for at least next few qtrs can be a major dampener.


(ffaizan) #92

“To my mind, the stock price is the least useful information you can track, and it’s the most widely tracked"

“If you can follow only one bit of data, follow the earnings"

  • Peter Lynch

“Lynch promises that if you ignore the ups and downs of the market and the endless speculation about interest rates, in the long term (anywhere from five to fifteen years) your portfolio will reward you.”

Excerpt From: Lynch, Peter. “One Up on Wall Street.”

Having all said by great investors it is very difficult to practise when it comes to real world. It requires very brave heart to see the stock diving and yet to hold onto it.

The key to a rational stock price is rational shareholders, both current and prospective.

  • Warren Buffet

Even if our partially-owned businesses continue to perform well in an economic sense, there will be years when they perform poorly in the market. At such times our net worth could shrink significantly. We will not be distressed by such a shrinkage; if the businesses continue to look attractive and we have cash available, we simply will add to our holdings at even more favorable prices.

  • Warren Buffet

Though we all know these quotes its difficult to follow and Allsec is a good case. I am not saying that Allsec is a business which will be preferred by such legendary investors. I am also not saying that decision to buy will be the correct decision. It may fall further from here. But if fundamentals are good we should not focus on price. Again,
All I am trying to Say is that value investing is not so easy in practice.


(Bheeshma Sanghani) #93

Hi heres a question that always intrigued me. do prices follow earnings or lead earnings? I don’t have a definite answer to that.

In terms of an analogy, i am reminded of the tortoise and hare story we read about in school. Prices being the hare are overconfident , have a tendency to run hard and are soon out of breath while the tortoise ( earnings ) trundles along ultimately winning the race. For a part of the race prices are winning and for a part the earnings. If the race continues ad infintum the hare and tortoise will finish as joint winners!

The art part of stock picking comes in identifying when the tortoise is winning and then betting on the hare to overtake the tortoise :slight_smile:

P.S - pardon my stupid analogies - am not very good at them as you may have understood by now


(csteja) #94

@bheeshma (other Allsec investors),
May I know why you are so bullish/convinced on Allsec future prospects ?

The company in their 15-16 annual report mentioned they took a conscious decision to only add clients who are profitable to their business. Also the company in one of quarterly presentation (Q2?) mentioned the significant growth is because of new contracts from existing US customers. Considering that they are making losses couple of years back, I believe they are able to show signifiant profits because of these changes. Do you see similar growth rates going ahead ?

I understand that management is trying to add new clients and expand to new geographies. But, if you see BPOs like Hinduja and First source (including Allsec) their bottom lines has been volatile (last 8 years). In such a case, how do you see earnings visibility in a HR/BPO business (like a bank or HFC - secular story) ?

I am just curious on what am I missing that you did not. Any pointers on business and growth visibility should help.

Not invested


(Hitesh Patel) #95

Allsec stock chart seems to be showing an interesting development on the technical front.

There is a principle called change of polarity. Here what happens is after a sharp run up in stock price which takes out its all time highs, the price tends to extend beyond the earlier top and ultimately the rally loses its fizz. The price gradually drifts down and comes down to the earlier zone of the previous top.

Comments and explanations and disclosure on charts. Such pattern is often seen in many charts of various companies. If the previous top region offers support then it could offer a great entry point for medium to long term investors.


(Bheeshma Sanghani) #96

I would agree with hiteshbhai ( who wouldnt!)


(sri krishna bhutra) #97

Have also read somewhere that nothing is more bullish than a failed head and shoulders. Don’t remember where I read this.
Could be wrong though.
Regards
Krishna


(Bheeshma Sanghani) #98

The most interesting thing is that the H&S failure ( we will still have to wait for failure confirmation though) has happened near its 2007 high. A full 10 years ago. The company has gone through a lot of pain and recovered from it. If the 2007 high acts as a floor then as hiteshbhai mentioned this is a nice opportunity.

Its PE is ~10 AFTER it doing 10 bags from 2015 levels. In my opinion its PE should be at least ~18. A great ROCe. Zero debt. and most importantly - zero equity dilution.

The analogy that comes to my mind is Yuvraj Singh. A great player, doing well , suffers from a major disease which takes a toll on him, he fights it - recovers and comes back stronger than ever before.

I would certainly wait for it to test the 2007 high. If it does hold then it would become a proper investment option.

Disc - invested


(chetanb) #99

wouldn’t the Trump’s visa restrictions and anti-outsourcing affect Allsec?


(Rohit Ojha) #100

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/e2a52ece-96c4-4481-99ea-fb87db26d0d3.pdf

Allsec results were as below
Revenue down 8% q-o-q from 87.73cr to 80.5cr vs 69.66cr in Q4Fy16
EBITDA is down 3.7%
Tax is again lowered due to MAT credit and earlier years credits.

Balance sheet looks good with current investments of 61cr and cash of 29cr.

Stock is trading at 365 ie trailing PE of about 9x