Kellton Tech - Growing IT company


(aashish2137) #148

From the concall, things look pretty much in control. What is the reason for laggard performance in the market other than general slowdown of IT sector?


(Rajeev M. Parashar) #149

I can think of a few reasons:

  • It will take time for the management to win back the Market’s trust after previous instances of aggressive revenue guidance to possibly jack up the prices to do a QIP.
  • The company’s inability to do a QIP at these prices will hurt its ability to do further acquisitions. The market doesn’t believe the company can grow organically.
  • Low margins compared to 8k Miles even though both are quite different in what they do. Low margins also mean the market doesn’t like company to take on debt to make acquisitions.
  • Significant jump in Goodwill on the B/S. This is bound to keep going up because of the company’s penchant for acquisitions. The market fears a possible impairment at some point.
  • Possible lack of understanding of how different digital technologies are from the traditional IT.

(aashish2137) #150

Kellton has been extremely range bound between 100-115 in the last 10 trading sessions. Can someone throw light on the technical aspects of this?


(vikrantmehta888) #151

I am very keen to understand technical analysis of Kellton too! It goes down by 4-5%on a bad day with hardly 20-30K volume, usually it is down by 1% on hardly 10k-20k volume, on surge days it goes up by 5-7% where volume is always near 2-3L.
What does this signify? Once i had read about the Thrust indicator which is simply multiplication of change in price by volume. This Thrust indicator is highly positive for Kellton for past 10 months, (i dont know before)
Also, the automated technical analysis shows the stock oversold. I am really not sure how to relate this “oversold” technical indicator to best buying opportunity.


(rahulparekh22) #152

Hi, while going through my monthly analysis of my holdings - two things strike out for me in Kellton now:

  1. Grandeur Peak Fund has been aggressively increasing its holding in Kellton: probably to take advantage of the underlying negativity which is holding the stock down - which is a good signal and which sometimes we investors miss out on because we think more about the short term negative overhang than the big picture

2)Also, the recent fall in stock price (feb-june) is accompanied by very low volume. In my opinion, a sustained fall in share price with low volume does not signify much or shouldnt be focused upon much - but thats my opinion again

3)Lastly, at a P/E of around 10-11 one year forward, for a company growing organically at 10% QoQ is cheap in this market and this probably falls in the Shankar Sharma category of limited downside vs much much higher upside atleast from these levels


(shadd) #153

FPI’s have increased stake by 1% to 4.92.
Is it a good bargain to buy at 102?
Disc:invested in small qty.


(vikrantmehta888) #154

Hi, which quarter are you talking about? Q1FY18? Because, i dont see any change for the last quarter.


(Pramod) #155

Forbes


(Sarabjeet Singh) #156

On long term charts, it looks like Kellton is getting ready for a breakout:

Views invited if you can spot something else as well in charts.

I invested recently based on tech indicators for entry price and I believe long term story looks good from a 3–4 year prospective. At this price risk seems to be covered to a major extent.

Thanks to everyone who contributed on this thread as it helped me a lot to understand about this company.


(newrb) #157

One aspect I am unable to understand about Kellton Tech is why their net margin is low. They should be able to command higher rates for work in new technologies - digital, AI, Machine learning etc.

I dont own Kellton. For those interested in this company, I would suggest to dig deeper to find out why margins are low.

Indian biggies are still catching up in digital and new age technologies. The key here is whether client consider them to be providing end to end services including consulting. While developing an app is not difficult, for a lot of clients, moving to digital involves transformation of their business processes and complex integration with their existing back end landscape. The key players to watch out for are Accenture and Cap Gemini, as they have been investing quite heavily in this. I also wonder whether Kellton can compete with the likes of Accenture.


(vikrantmehta888) #158

Even after 52 days since the end of Q1, these guys are unable to declare the results date, what a sad management! They need these many days to cook up the books?


(Rajeev M. Parashar) #159

@vikrantmehta888
http://www.bseindia.com/corporates/anndet_new.aspx?newsid=32931d98-5a46-41f3-b4a9-7b07689479ce

Company is implementing IND-AS and keeping in view SEBI Circular dated July 5th, 2016 allowing extension by one month for submission of Financial Results pursuant to Regulation 33 of SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 for the quarter ended June 30th, 2017, the Company will be submitting its Financial Statement for the quarter on or before September 14th, 2017.


(Sarabjeet Singh) #160

Nice growth shown in quarterly numbers:

http://www.bseindia.com/xml-data/corpfiling/AttachLive/026fa83a-5052-4e48-88ef-374f3b634450.pdf

Disc : Invested


(Parag) #161

I had a quick look at the company, and I have following observations:

First, the company has an impressive growth record in last few years. The revenue grew from 64cr (FY12) to 615 cr (FY17). However, this revenue growth is mainly fuelled by company’s acquisitions. From August 2011 to March 2017, the company has made nine acquisitions.

Second, from current Revenue of 615cr, the management has set an ambitious target of achieving revenue of Rs 2100 by Fy21. The management has hinted in Q4 Fy17 con- call that they have set up this goal with the help of investment banker. I can understand the company setting up the ambitious target (4 years is a long time in technology industry), but relying upon or doing this with the help of investment banker sounds a bit iffy to me and give me, personally, an indication that the company is talking up the share price.

Third, the management has growth minded, which is a good thing for the stock. However, history is ripe with examples when a company management is extremely focused on meeting some specific target or number, they sometimes, go to extreme lengths to meet the numbers. This reminds me wise words from the sage of Omaha (Warren Buffet) “Managers that always promise to ‘make the numbers’ will at some point be tempted to make up the numbers.””

Overall, in my view, the company does not seem to have sounds base to scale up revenue organically, and they are relying on acquisition to get customers or acquire new skills- both things cost a lot of money-otherwise it would not be relying on acquisition to fuel the growth. Due to the number of acquistions, company’s balance sheet (FY17), the intangible asset is worth 153 cr, which is one-third of the current market cap.

By the way, there are not many, I would say hardly any IT company, in India, which has grown by doing an aggressive acquisition. Most of the reputed company rely on organic growth and market as much appreciate organic growth more than inorganic growth in a long-term (McKinsey’s book on valuation…I think).


(Parag) #162

I came across interview of Prof Sanjay Bakshi where he is talking about patterns to avoid

Sanjay Bakshi: Well, I have a longer list of patterns to avoid as compared to success patterns.

Serial acquirers: I generally dislike companies which grow inorganically, especially when they take a lot of debt to finance the acquisitions. While some platform companies - Berkshire Hathaway being the prime example - are huge wealth creators, generally speaking, platform companies destroy value. So one needs to be skeptical while evaluating serial acquirers.


(Rajeev M. Parashar) #163

Well, there is no dearth of skepticism in this thread. Even Pat Dorsey in his book ‘Five Rules’ repeatedly warns against acquisition fueled growth.

It remains to be seen whether the company can achieve the 20% organic growth they are guiding for, & an acquisition or two which suit them in terms of expertise or customer base.

The target company should have a revenue between $5-50 million. We don’t look at companies which have a revenue greater than $50 million. An acquired company is completely integrated within 180 days.
Acquisitions, if any, will be done from internal accruals and debt (Debt is easily serviceable as of now, but don’t want to keep on taking debt to make acquisitions).

Disclosure: Invested, and I acknowledge the risks as stated below.


(rao13) #164

Did anyone attend the AGM??


(rahulparekh22) #165

High volume breakout today after a high volume day yesterday - indicates strong bullish momentum
Highest single day volume since one year


(mp bajaj) #166

@rahulparekh22 Any target prediction by this type of chart & in what duration


(rahulparekh22) #167

Hi MP,

On a technical basis, i can say the momentum is strongly positive but I cant accurately comment on what price will it lead to.
However, on a fundamental basis, I strongly believe that Kellton is an under-appreciated story.