Mgmt clarified what they are doing on the Watson front in last concall in detail. This could be a big segment for them going forward, and Mr. Anand was pretty much upbeat on the developments.
Regarding Digital, he was again very upbeat, and said this would be the main area of growth in coming qtrs/years.
Regarding margin improvement, i got a feeling that it is going to remain around 15-16% for next year or so. Reasons - Their usual service business is stagnant, and is not growing much, rather there is a pressure on margin front here. IBM Watson, will probably take a few years to break even. Utilization levels are almost at peak at 78%. I don;t think there can be much improvement on this front.
Another big negative for all IT Companies is USD-INR exchange rate. Rupee has strengthened quite a bit from 67-68 to 65.4 levels in short time. I am not sure about their hedging policies. If they are not, they might take a big hit, which can further reduce bottomline margins.
I am positive on this business in medium to long term, as i like what they are doing on digital front and with IBM Watson. Key is margin improvement, which has fallen from 20% to 15%. This can happen as revenue from IP grows significantly.
New tie up with Amazon web services
http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/37924435-5c08-436e-a69c-0fec2329f9a5.pdf
Slightly off topic; but while reading this book one realizes the potential of IBM Watson (gets a good reference) from healthcare to machine learning. What they are doing with Watson, can that business be taken over by other companies over next few years?
I believe this company is among the best mid cap It companies available in India with a reasonable PE & good cash in India.The fact is that current too much negativity towards It services resulting in low valuation
Persistent system has made new 30 months low .
Honestly I am running out of idea why this stock is not getting valued by the Market specially when it is hiving a very high valuation to some junkyard stocks … It has almost all the criteria which an Investor might look for debt free, high FCF, Technology Niche , Strong Distribution network, Good client-tel, Right Partnership etc. yet moving southwards …
Two possible ways to look at this:-
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Either you are right and you need to be patient and wait till the markets discovers the virtues of the company. That can take from few months to few years. During this period, if you are really convinced, you can add to your positions.
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Ask yourself if the market knows or thinks anything that you may be missing. Like, how the visa issue will impact the company, how outsourcing itself will be affected by the new US administration, how protectionism in US and other parts of Europe may impact the company, how sustainable is their business with the automation threat etc etc.
If you are convinced about the story , be happy to ve something to accumulate in this market else if skeptic , time to ask some more questions to investment theory.can give examples of stocks where market took 4-5 years to realize stock worth but here whole sector is in negative sentiment . Not only this stock but few more. Disc : invested and accumulating
actually there is a 11 crore one time exceptional litigation cost settlement else PAT numbers would be been like 10% growth. Check note no 37
Now that is something which will give me more confidence. Hope my hard effort on research of this company will pay off.
report(1).pdf (422.0 KB)
Buffet is selling one-third of his stakes in IBM citing strong competition the IT giant has run into. It can be a reflection into the future of PS’s collaboration with the company too.
https://www.ft.com/content/d986ce50-3143-11e7-9555-23ef563ecf9a
Now NDTV reported about it as standing at inflection point …
Business Model shift looks attractive :-
- From service based to IP based revenue model.
- Engage in distributing and marketing of existing products from different companies rather than making it own.
- Work unit based billing to the customer than effort based billing.
And all of them happen in last two year. Need to see how much this will add to the revenue of the company.
My concerns
1)How appreciation of rupee in this quarter will affect the earnings? I think it will have huge Forex loss.
2)Why promoters are decreasing the shareholding each quarter when they are too optimistic for next 6 quarters?
3)Why Akshat Corporation is making loss YoY?
Hi Akshay,
To answer your concern here are below points I would like to mention.
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Any company with Forex exposure are always susceptible to currency loss as and when the exchange rate change but since they do not have any long term receivable so the impact will be much less I guess.
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Selling shares by the promoter is a regular corporate activity for fund deployment as long as they are not pledging their part. More over the company is in a restructuring mode for last two year so we can generalize this activity as a normal corporate activity.
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Well honestly speaking acquisition of Akshat Corporation was beyond my understanding and I found nothing aligned to the corporate strategy but only to extend their product portfolio with Microsoft Technologies.
On point 1,these r open risk in any IT company which are sometimes on the positive side and sometimes negative .Nothing unknown .Until and unless rupee appreciation is a long term positive direction, I am not sure if we should bother about quarterly noise,even if , it is a known risk.so, depends on one whether he wants to take it or leave it.
On point 2 ,Mr Deshpande’s father has donated part of his salary to charity and hence dilution, source FY17 AR.
Will check point 3
