I agree. The demerger has resulted in focus, which was missing when they were the products division of polaris.
The problem of having services and product under the same roof is the differential economics of both businesses. Product division is looked upon as EPS diluting in the short run because of the investments in R and D and sales. This results in pressure from shareholders. Generally in the quarterly results obsessed markets this is a big dampener. E.g. KPIT is struggling with the same issues with its huge investments in their automobile product development being looked negatively by the market. So generally you tend to fall between two stools.
With a focused approach expectations are set with clear disclosures. I request the boarders to go through the investors presentation on the IDA website. They are extremely transparent and have given clear commentary on any diversions from their projections (E.g. sales have increased just 12 percent this quarter because two deals finalization got postponed). One of the deals was realized a fortnight back (HDFC bank Sri Lanka).
I have tried to use a discounting model to find its valuation assuming that they walk on their projected path.
Cash EPS : -13.52 1.41 68.51 144.25 238.69
Discounting them at 15 percent gives me a valuation of Rs. 192 presently. Though boarders might call it looking too much forward it gives a benchmark for evaluation of projections against actual results.
BTW Jain has projected a 22 to 26 percent growth rate in the next two years and gross margins of 55 percentage. Now there are two aspects to it.
- The license fee revenue will be lumpy with deal wins.
- More importantly with every installation of say a Core banking system it gives a great view of future enhancement and maintenance revenue streams as an installation of a CBS is usually for a period of 15 years. So unlike a service company there is a high degree of confidence in future revenue streams, so it is just like a toll bridge.
For those who want the projections please ping me I will mail it across which can be used as a benchmark to map actual results with projections. Cheers.