The management is now aiming for de-concentration of client and are already successful, so good time ahead, i continue to remain bullish in this stock and will add in every dip.
Quick review of the results
Sales up by 2.5 % for HY
PAT up by 43% for HY
EPS up by 40% to 25.33
Assuming last years ratio between 1st and 2nd half to continue , they should deliver a EPS of about 58 for FY 2015.
At the current market price, stock is priced at 11 times earnings.
Improvement in PAT was mostly achieved by a 5% reduction in Employee costs as compared to LY and 5 % reduction in other costs .
Can somebody tell how they are achieving this cost reduction in employee costs and whether they can sustain it in Future?
I watched MDs interview, he sounded like domestic a big opportunity, I see this kind of projection from last 2-3 years but no improvement in domestic numbers. They claim to have got new client and the headcount (i mean their employee cost) has come down, little contradicting.
@mahesh, just sharing info i received
1)employee cost has reduced through effective resources mix besides there certain pay out which are periodic in nature resulting into variation in employment cost.
2)QtoQ revenues were flat bcoz The company has made headways into newer opportunities as it is working on reducing its client concentration. The new accounts take time to grow and mature in this niche area.
these are positive signs
The stock was heading towards 600 due to overall bad market sentiments for IT Pack, giving good opportunities to long term investors and following news came which made it take U turn to close approx 7% up.
R.S. Software (India) Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on November 07, 2014, to consider and approve the Sub Division of Face Value of Equity Shares and matters thereof.
It seems RSS has started taking much needed market confidence building measures. Do we have bonus next in line?
This augurs well since a split in shares will mean EPS reduction ( and of course price reduction in corresponding ratio) but EPS will be on ascendancy in coming qtrs because of expanding margins. If you go thro mr.jainâs latest interview he dances around the topic of flat to negative top line but bullish on double digit growth of Eps. I think, sales growth has to come but may not happen immediately but the split will also mean some more perceived liquidity in the stock.
RS Soft is trading @ 610 , any comments if its worth accumulating or one should wait?
IMO, There hasnât been any change in the fundamentals of the company, only change in the market perception. Because of this change in the perception and it getting into the radar of institutional investors, it sharply appreciated from 200 to 800 levels in no time so, this much needed consolidation and correction was called for, as lots of short term trading positions were built into this, which is actually good for a long sustained rally.
I think a lot in the story is yet to unfold with many growth drivers in place with overall Indian and Global economy recovering, huge growth potential of e-tailers in India which will rise the demand for online payment service providers and management starting to take some of the market confidence building measures as and when it happens. They have already announced and board has approved the stock split which needs to be approved by shareholders now. First level of re-rating is already done and the stock is now on institutional investorsâ radar. so any change in the business fundamentals will be reflected in the stock price almost immediately. Valuation at CMP is still attractive compared to other opportunities in the market and anything but overstretched. If the bull market sustains, a lot more money is yet to flow in indian economy and some of it, iâm confident, will flow into RSS looking at the huge opportunity size itâs staring at and kind of numbers that itâs throwing.
Market seems to have taken a negative view onQ2 numbers andoverreacted to it, which is not bad at all if one looks deeper into it. The management has now refocused their efforts on US with its economy back on track from ROW which has resulted in improved margins. Rupee Sales seems to have declined because of Rupee appreciation YOY.
Having said that we still donât have much clarity on clientconcentrationrisk which is of course a concern.
To buy or sell is a very personal decision and you have to take a call on this considering the universe of opportunities that you have.
Disc: Invested from lower levels and views are biased
Not sure if this would affect RS Software in anyway, but Visa has been building up itâs in-house software development capacity.
Visa Inc. (NYSE:V), the global leader in payments, today announced that it will strengthen its technology resources by creating 2,000 full-time technologist positions. These positions will be a combination of new roles and existing contractor positions that are being converted to full-time positions. Visa also plans to open a new technology center in India. The combination of these initiatives will help accelerate the shift to electronic payments and drive innovation in mobile and digital platforms.
Visa plans to recruit professional technologists, many in specialized areas, to enhance its teams in India, Singapore and four U.S. locations. Recruitment efforts, which are currently underway and will continue through 2017, will focus on a range of technology needs spanning data scientists, engineers, platform architects and mobile developers.
Visa said it will hire 2,000 technologists globally, including conversion of contractor positions to full time positions within the company. The company did not say how many of these will be in India, but sources said the majority would likely be here.
Teams in the new technology development centre will focus primarily on the development of key application programming interfaces (APIs) and software development kits (SDKs) helping an expanding group of global partners to more easily access VisaNet when creating new commerce and payment experiences, Visa said.
I came across the news item, immediately related how it might affect RS Software and posted it here without realising that itâs a 2 months old news!
Disclaimer: Not invested. I am a software engineer who generally does not invest in software companies, maybe due to âfamiliarity biasâ!
Todayâs cut in RS was deep. Nibbled a bit but somehow felt that someone knows more than what is in public domain. The fall has been too drastic. Comments/ reasons welcome
I bought too. The average return on equity has been ~40% for last 5 yrs -
http://www.screener.in/company/?q=517447
Valuations look attractive.
Stock price is falling continuously. Any major concerns on growth or business?
As you all know, RS has gone down quiet a bit recently. 40% down from All time high, 26% down in last 3 months.
However, if you look at past 6 months, its still up 100+%.
So, what's going on? Is this going cheap at current levels?
- As someone has pointed above, avg ROE is 40% for last 5 years.5 year ROE calculation is wrong way to look at the company asRS had just turned net worth positive 6-7 years ago.(See Marksans Pharma 's current Roe- its also has amazing roe due to same reason)
| Roe | 3 yr Incremental Roe | |
| FY09 | 17% | |
| FY10 | 36% | |
| FY11 | 46% | |
| FY12 | 32% | |
| FY13 | 31% | |
| FY14 | 30% | 25% |
Roe has been falling for past 3 years as base (net-worth) has been increasing, and hence, better way to look at the company would be from an incremental Roe perspective which is 25%, not that bad but not as lucrative as 40% also!
- The bigger problem is low sales growth- For last 2.5 years, USD sales growth is in single digits (around 7%) which is pathetic! Thanks to INR depreciation and margin expansion, PAT growth in INR terms looks great but over the long term, you can't grow much faster than your sales.
- Management is not great. Despite low capex requirements, they are keeping low dividend payout and are hoarding cash in the name of possible M&A.
So, I would rate it as a decent quality but low growth business and hence the growth investor in me says - Avoid till you see high sales growth!!
But the Value Investor shouts- Everything is a buy at some price. So, now to the tougher question- At what valuation this becomes a buy ?
Imho it becomes a no-brainer - 1) When you don't have to pay for future growth. Assuming 60 crs PAT for this year-
- With 10% opportunity cost, that's 600 crs Mcap
- With 12% cost, that's 500 crs Mcap
- With 15% cost, that's 400 crs Mcap.
2) When Payback period (Mcap/ next 5 yrs profits) is less than 1. Assuming 12% growth, that gives no-brainer mcap of 380 crs. (12% INR growth comes after assuming 8% USD growth & 4% INR depreciation over the long term)
So, in nutshell, my wishlist for RS is 400 crs Mcap. With Dec being traditionally poor quarter, Mr Market may throw RS near that mcap. Lets see!
PS- All this mcap theory changes IF they grow faster than the assumed rate and/or they deploy their cash effectively.
Disclosure- Following for last 3 years.
[quote="jk321, post:214, topic:452479565"]
> As you all know, RS has gone down quiet a bit recently. 40% down from All time high, 26% down in last 3 months.
>
> However, if you look at past 6 months, its still up 100+%.
>
> So, what's going on? Is this going cheap at current levels?
>
> * As someone has pointed above, avg ROE is 40% for last 5 year ROE calculation is wrong way to look at the company had just turned net worth positive 6-7 years Marksans Pharma 's current Roe- its also has amazing roe due to same reason)
> 3 yr Incremental Roe
> 25%
>
> Roe has been falling for past 3 years as base (net-worth) has been increasing, and hence, better way to look at the company would be from an perspective which is 25%, not that bad but not as lucrative as 40% also!
>
> * The bigger problem is For last 2.5 years, USD sales growth is in single digits (around 7%) which is pathetic! Thanks to INR depreciation and margin expansion, PAT growth in INR terms looks great but over the long term, you can't grow much faster than your sales.
> * Management is not great. Despite low capex requirements, they are keeping in the name of possible M&A.
>
> So, I would rate it as a decent quality but low growth business and hence the growth investor in me says - Avoid till you see high sales growth!!
>
> But the Value Investor shouts- Everything is a buy at some price. So, now to the tougher question- At what valuation this becomes a buy ?
>
> Imho it becomes a no-brainer - 1) When you don't have to pay for future growth. Assuming 60 crs PAT for this year-
>
> * With 10% opportunity cost, that's 600 crs Mcap
> * With 12% cost, that's 500 crs Mcap
> * With 15% cost, that's 400 crs Mcap.
>
> 2) When Payback period (Mcap/ next 5 yrs profits) is less than 1. Assuming 12% growth, that gives no-brainer mcap of 380 crs. (12% INR growth comes after assuming 8% USD growth & 4% INR depreciation over the long term)
>
> So, in nutshell, my wishlist for RS is 400 crs Mcap. With Dec being traditionally poor quarter, Mr Market may throw RS near that mcap. Lets see!
>
> PS- All this mcap theory changes IF they grow faster than the assumed rate and/or they deploy their cash effectively.
>
> Disclosure- Following for last 3 years.
[/quote]
@Jatin. At tdy's price, mkt cap is 639 cr. So, you want a price of 310 ( from today's 498). Wow. That will be PE of less than 7. I know we all want it cheap but this low? Hmm.
I think the immediate big trigger can be one decent acquisition , at decent price, so that the growth concerns are addressed
.......
years.5 asRS ago.(See| Roe | ||
| FY09 | 17% | |
| FY10 | 36% | |
| FY11 | 46% | |
| FY12 | 32% | |
| FY13 | 31% | FY14 | 30% | incremental Roe low sales growth- low dividend payout and are hoarding cash
Check out interview of the CMD for some insights -
Like to mention that the Annual Report is specially good in getting an idea abt the comprehensive service they offer in e-payment domain.
This quarter, the forex gain should also come into picture due to weaker Rupee.
Given the huge client concentration, dependence on acquisitions for growth, I also think 6-7 is a fair price to get in. From the scuttle butt I did, the company does some good work but there are at least 4-5 vendors who also do the same.
Itâs quite strange that in an industry like payments which is recording 15-20% growth worldwide, RS is struggling for double digit same currency growth. Good company IMHO but unlikely to become the next Infosys.
Remember what happened to Polaris with the client concentration issue with citibank -history seems to rhyme here.
the interview sounds very very cliched to me - all generics without any specific statements or direction about the ramp up. Not very confidence inspiring IMHO
How are you calculating the ROE (not incremental ROE) ? It has been 36.29% last year and will be around that number for this year too -
http://www.screener.in/company/?q=517447
At the end of the day, they are maintaining RoE at 36%+ for so many years. They are providing good value addition to their clients. The focus on providing comprehensive set of services, looking to diversify clients, eager to learn and provide solutions for newer platforms and technologies. Valuation of 6-7 p/e would be very high undervaluation for this stock imho.
@ Kalyan- 400 crs is like the dream mcap as per my assumptions & the calculations. If growth improves or cash is put to better use, it may be a great buy even now.
@vickyB- Yes, they are claiming to be doing good service to their clients & are talking of reducing client concentration & going for margin expansion⌠all this is good. But sales growth isnât exciting.
Last yr same quarter USD-INR avg was at 62, so currency gain shouldnât be there.