Admin,
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10% revenue growth is nothing for a micro cap - before everyone gets too excited by profit growth, a company that is slowing down so rapidly will run out of steam too soon and the multiple will get re-rated down massively to 3-4. What confidence do we have that this is a temporary aberration ?
company is trying for new processors according to mgmt, this should add to the top line growth, bottom line has always been good for this gem, revaluation will soon take place…the stock is already making new highs and already in limelight,more to come
RSS has consistently grown by margin expansion in the recent past with moderate expansion of revenue which is not easy for a micro cap like RSS and truly commendable. As per AR, company has invested in sales engine and intensified efforts to add more blue chip clients and even looking for inorganic growth. if you consider the pile of cash that the company is sitting on and the kind of numbers that it has shown in last 5 years during bad economy, It is likely to accelerate its growth. In the current changed market sentiments, It will be a great opportunity if it gets de-rated to 3-4 PE, which looks like a day dream now.
Could anyone throw light on the issue of Revenue Collection (How is the company billing its client in this case “Visa” … Like do they charge on fixed amount or is it per transaction ) Have looked in the previous post either i missed or no one talked on it.
@ Navtej,
Early fellow investors have tried to get this and other relevant info. from the management in the past but management seems to be quite reluctant to open up and share this info. may be because of fear of the competition. In one of the answers, IR has indicated that revenue mix is both in fixed amount and per transaction. But good thing is that they have always maintained that the company is on high growth trajectory and they have delivered on it till now. The management is quite bullish about the growth even now.
Disc: Invested and may add on dips
RSS up by 10%, hit UC of 384.65 today. Is there any specific trigger or it is heavy buying by the institutions following buy calls?
Varadha,
That is twisted logic.The company is undergoing some restructuring of its business & thus the topline growth is subdued.The cos. that trade at 3-4x are deep cyclicals or debt ridden cos.RSS happens to be cash rich & a dividend payer! All the more reason why it should ATLEAST sustain the present 7-8x kind of multiples.Then,look at their Return Ratios.So,forget about 3-4x & think how big the opportunity size is?
@ sagar saxena, I am expecting more Domestic and foreign II and UHNI’s entry into RSS in months to come.My take is this, RSS is an exclusive epayment company and as we all know niche players deserve a better multiple …my question to you all , if they show fantastic growth in future can this take a p/e multiple of 50-60 in say 3 years?
Sagar.
Could you explain what “some restructuring” means ? Always helps to be specific so that we can argue logically.
I am completely with you on the return ratios and the cash on books - Polaris got stuck for growth primarily because of one client dependency (citibank) and their margins started getting squeezed out slowly over a period of time and they could not diversify enough to offset that.
I am only trying to put forward lessons from history
@Varadha, While we are at specifics:-), I wonder what dramatic slowing down you are talking about? Last five year sales growth has been 20%+, Last 3 years 24%, and TTM also nearly 20%. If this is a slow growing company, much of the rest of corporate India must seem like absolute tortoises.
I do not see the dramatic slowdown you have talked about. Is it only in the last quarter? Is one quarter the best way to judge this company’s growth? Have the history of past quarters shown that growth is absolutely bang on 20-25% in every quarter, and that only in the last quarter it has dramatically slowed? I don’t think so. In the last 5 years, there have been many quarters with slow growth, or even degrowth. On an annual basis, this evens out to 20% growth.
And specifically, what is ordained about microcaps that they must grow faster than 10% to be considered “something”? Is 10% growth with inflation at 8% ok in a large cap?
Disc: Invested at around 190, around 1% of my PF.
I agree that the 5 year track record is a comfort factor. Stock price, one must remember is a function of future growth expected. As Warren buffet said, if past history was a judge of future performance, the richest folks would be librarians.
What is important is to understand the specifics of the situation - I am only saying asking what is the reason for the slow growth and how can we be sure this is not a “new normal” ?
For the record, I think pretty highly of RS’s software and products and I am thinking of initiating a position. However, I always invert to answer the famous question that Howard Marks asks, “So, are we missing something here ?”
My question only relates to the present - let me know if you know if you have a specific answer
specifics
,
with such micro or small caps, often one cant really put a finger on what is right or wrong with the company. If everything was clear, you would not get it at a single digit multiple. Unless one goes and talks to the mgt , you just have to rely on annual or brokerage reports. RS annual report has volumes of yada yada on payments domain but nothing very specific - that may be by design to protect from competition or hide something. I tend to believe unless one is selling some product/ IP, IT companies dont have much of a moat - if IT can be outsourced to one, it could to another as well. So it’s great that they are domain focused for two decades but what stops TCS from poaching their clients or in other words what is their moat. If they have been able to retain Visa for years maybe switching vendors in this industry is too much of a hassle.
What we do know is they are sweetly positioned in a domain which is about to explode. If they have mostly foreign clientele, it’s already exploded, which may be why we have been witnessing such growth rates for past years. We also know that the mgt is trying hard to be seen as investor friendly by increased quarterly dividends, coming on TV, detailed annual reports etc.
I’ve invested in RS as an opportunistic bet since ultimately market pays for growth. Look at their past numbers and in current conditions, it should not be getting a low single digit multiple. Until there is coverage from tier 1 brokerages (or valuepickr ;)), one just has to believe in investors like Dolly who has been increasing stake. She showed up in Avanti recently and look what it’s doing to the stock!
As It has been a while since there is an update on this thread, thought of sharing one. Today RSS closed at Rs. 767 in 20% UC due to heavy buying post two days correction on account of uncertainties over Fed’s actions.
The correction provided much needed better levels to the long term investors. I think such opportunities should be quickly grabbed by long term investors as there is panic selling by short terms traders, speculators and punters who have joined in the party with the sharp rise in the script.The stock was quite quick in recovering from two days lows signalling bullish sentiments in the stock.
The re-rating hypothesis has played out very well and with increasing participation from institutional investors RSS has been re-rated by the market richly rewarding the investors.
At today’s closing price, the stock is trading at 17.25x PE TTM with MCap of Rs. 980 cr. Looking at the clean balance sheet, niche growing payment industry, huge opportunity size, starting of the bull phase with NM at the helm of affairs for next 5 yearswith full majority, the future looks quite bright for this gem of the stock.
Views invited.
Disc: Multibagger for me so views may be biased.
Missed it - kept thinking at Rs. 300-400 levels, that PE is double digits - might not run-up.
lesson learnt.
Actually Varadharajan - that is a good trait IMHO. It had a run-up and at that point its tempting to jump in. As investment gurus says better to wait on the shore than jump into rising waters (and maybe drown)
I would look at the fundamentals and if the valuations make sense would jump in even now. In a long-term play, the good cos will always perform.
P.S. I am invested in the stock, though not as much as I would have liked 
latest video of Raj jain in et now
Here Raj jain clearly says that they have recently broken into another big payment network.(min 3.32 of the video), does it mean they have Rupay in their bag now?
RS down ~13% (along with TCS and HCL). And views?
Top line growth was absent (-5%) and whoever missed that, got crushed. That happened for biggies TCS and HCL too. PAT seems decent up but if it is due to better margin accounts, then it augurs well. All in all, sentiments with marginal results crucified it. My gut- with Dow recovery on Fri and perhaps positive news on Maha election front, should turn things around. IMHO Long term investor shouldn’t worry but short term pain isn’t ruled out since next week big ticket earnings are there in US and all it takes to spook is one bad qtr of some biggie
Disc. Invested at lower levels but bought some qty at higher prices at 720s due to pre-opening orders and my travel. Got nailed royally…I am not prepared to average but 580-620 isn’t ruled out and I will miss out such nice entry pts.
Their American division is slowly doing very well, ROW division has been cut, topline growth has always been around 10-12% for rs software, but they are very efficient at generating bottomline(trend is continuing for the last 5 years)nothing new in this company…this is how they have been working, markets just over-reacted.
my friends boss a CEO of a tech business grew from $14M to $40M would always use these key focus areas: cashflow, gross margin and profit. He didn’t care about top line revenue because if sales reps were paid and incented on revenue instead of gross margin the business would suffer.
The result is all focused on bringing to market services and solutions that generated good gross margin contribution to the business. Small business lives off cash flow and margin.
I know a company where their top-line growth year over year wasn’t impressive. But they were extremely profitable, retained significant market share and considered themselves successful. I’ve seen cases of 70% top-line growth year over year in a mature market but with very poor cost structure.
All in all rs software will continue to be very strong w.r.t bottomline and will continue with old topline numbers.my opinion is that this company deserves a pe rating of atleast 20. seniors pl share your views.