If revenues from existing clients does not subside, reducing client concentration will automatically result in sales growth.
VISA signs a deal with Infosys. Could impact RS Software.
VISA has been working with many vendors for long and RS is just one of them. I think, itâs BAU and nothing materially new about it.
Shareholding Pattern for Dec-14 is outâŚ
Good to know that most of the big investors are still there and have not completely exited the stock. Reliance Capital has exited completely. DKâs stake down from 3.65% to 3.47% and Barclays down from 4.48% to 4.47%.
People might think that the co. doesnât have strong moats but reading its annual report one gets the impression that it has strong competence, experience and provide comprehensive value addition to its client
Overreaction to seasonally weak quarter which was not bad either. Have sold 1/4th of my holdings due to this selling pressure.
@vaibhav. Yet another flat qtr and Jain continues to talk only about margin and not top line growth. I think stock will tank and perhaps reach the market cap discussed before. On moat, things have on and Visa seems to be getting away, although not confirmed.
Ps - exited 90%
I was looking at the consistency in results from year 2008 to 2015 -
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 (TTM)
Sales(in Cr)
100.36 149.57 161.89 188.26 247.14 293.22 351.88 355.48
Operating Margin
10.33% 13.00% 13.18% 16.51% 14.97% 16.02% 20.98% 24.58
PAT(cr)
1.17 6.329.56 20.71 27.43 35.44 51.18 65.45
You will find that
)- It is a co. that has provided consistent brilliant RoE of 35%+ for last many years.
)- sales have grown at much slower CAGR that PAT. So I wont be disturbed at all by slow sales growth in past few quarters. This falling share price has caught me by surprise.
)- Saving some cash for any acquisition opportunity tht may arise
)- Now that they have started paying dividend, when renowned value-investors like dolly khanna are buying, when promoters have increased their own stake from last few yrs, we are looking at selling? I guess I will be staying put.
electronic payment industry is mammoth, RSS has domain mastery, and is adaptable, is learning newer avenues of business (like payments from mobile platforms.)
They were working on reducing client concentration for good. Where did you read that visa client is getting away? Pls share the source.
People might think that the co. doesnât have strong moats but reading its annual report one gets the impression that it has strong competence, experience and provide comprehensive value addition to its client
Overreaction to seasonally weak quarter which was not bad either. Have sold 1/4th of my holdings due to this selling pressure.
Vaibhav
There were several unconfirmed reports that visa is tieing up with others and also doing its own captive
(again, old news)
Also, I did not like the employee cost reduction and I bailed out
-âŚ
Visa and RSS has been 2 decades old association. I guess the revenue of RSS is peanuts when compared to the money that VISA spends on IT/software. We should not assume that RSS business will suffer. It has competence in the domain which is why it has sustained itself. (Plus the focus on client de-concentration)
Raj Jain on 16th Jan-2015 gives guidance of double digit growth in profitability (PAT) -
Link: Visa to set up technology centre in India next year - Times of India
I was looking at the consistency in results from year 2008 to 2015 -âŚ
Before I begin let me put a small disclosure that I have exited recently only and my views may be biased
The reasons for my exit was not slowing revenues as I am ok with slowdown for few quarters but because of the some of the steps taken by management and recent interviews by Mr Jain
First cause of concern was the stock split which can be good for illiquid companies or whose shares price are too high for most investors like Page,MRF but I am still not able to fathom the reasons for sudden need of stock split specially when promoters hold a meager 37% and there was enough liquidity as very few funds hold it
But the bigger concern was the way Mr Jain is giving interviews. Its one thing to have slowdown in business but not accepting the fact that there is no growth and sidetracking the question of Revenue growth to PAT growth puts question marks on integrity of the management. Just telling again and again that industry is big and people will move to digital payment system doesnât mean the RS will automatically get the business. If Mr Jain had admitted that yes there was a slowdown in companyâs business because every business will have its ups and downs I would have still given him the benefit of the doubt.Besides that being only PAT focused means you can do account shenanigans like lowering employee cost in order to maintain PAT growth which is not good for companies in long term
Stock split does is neither positive nor negative imho.
Check this out -
https://www.screener.in/company/?q=517447&con=1
Promoter shareholding has **grown consistently **from 2009 when it was 20% to now when it is 38.5%
lowering employee cost is because the management wants to maintain the profitability growth curve or the RoE (35%) even when the sales growth havenât grown much is last few quarters. That tells that the management is performance oriented.
(the co. has 150Cr. cash which is also a positive)
Growth oriented at any cost can be considered risky as well. If the business is expected to grow in future shouldnât the company employ more expecting more demand or do attrition/ cost cutting.
You must have also seen last few years the promoters do a lot of trading. Selling once in a while is ok and every promoter group does that but always selling near peaks and buying your own company shares when they are significantly down from bottom does not bode well.
And as I pointed out earlier also if Mr Jain had admitted the company was facing a problem the case would be different. In last 2 interviews he is showcasing as everything is right with business. And always side ling questions of Revenue to PAT growth which can be still be achieved by clever accounting in short term but in long term it doesnât work.
Still the cash pile and constant dividends along with reasonable valuations give a safeguard to investors but according to me those management who donât admit there is a problem can never look at ways to make amendments tomakethe business stronger (one of the ways to checkmanagementintegrity)
Link: https://www.screener.in/company/?q=517447&con=1 **grown consistently **from
Raj Jain has admitted many times that client conc. exists and they_are_working on de-concentration. I dont think there is a question of not admitting.
Selling at peak and buying at bottom - any promoter will be tempted to do that. Whats unethical abt this? Overall the share holding has increased from 20% to 38.5% in last 5 years.
They are giving reasonable guidance, even after that if the stock falls due to panic, they do buy and should buy at lower levels.
tomakethe checkmanagementintegrity)
I exited this stock recently. I had bought into it seeing famous names like Dolly Khanna, etc. buying it. I admit I did not do any research of my own.
Why did I exit? I have worked in the payments industry for 6 years and realized that when that industry is exploding, RSS topline is remaining more or less unchanged, for last 2 quarters. This means other competitors are getting a bigger pie than RSS. Logically, this would only be due to core competence not being there. And therefore I decided to exit.
Now its really testing the patience 
not able to find any info which would really support my urge to exit. Results werenât that bad to cause 35% downfall.
Anyone having more insights/thougts?
Thanks
I have observed a trend that the market punishes any stock where the top line shows no yoy growth, despite a healthy growth in bottom line. RSS is the victim of this.
RS software had consistently grown by more than 15% for 7 years. How can you decide by 2 qtrs performance that t5here there is no core competence?
What is RS software and its managementsâ reputation within the industry? How are its products rated?
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 (TTM)
Sales(in Cr)
100.36 149.57 161.89 188.26 247.14 293.22 351.88 355.48
Operating Margin
10.33% 13.00% 13.18% 16.51% 14.97% 16.02% 20.98% 24.58
PAT(cr)
1.17 6.329.56 20.71 27.43 35.44 51.18 65.45
Seshukumar, I cannot answer your questions as the company does not provide this info in its annual report. If you believe this is a good company based on historical numbers, you are entitled to your view. I made my decision because in Aug 2014, HDFC Securities had provided a recommendation for this company, estimating FY15 revenue at Rs. 445cr. Given that the company has just done Rs. 270cr in the first 9 months, I do not believe that it will touch the estimated number. It most likely will achieve the NP estimate, but how long can a company keep squeezing costs and grow, without growing top-line?
Dont think its as much about stagnant sales for last few quarters and more about client concentration n about investors getting spooked because of news reports of visa hiring infy etc n building in-house capability.
We (me & my Bro) asked few questions from the management (CS) over the email and got following response. Raising few red flags as in they dont have proper strategy in place to grow topline; they have been trying to redice dependency on one client but seems they are unsuccessful in doing so. Hope this helps.
Sent: 02 February 2015 13:25 To: Vijendra Kumar Surana; Anindya Sen
Dear Sir,
Concern 1;
- There are some concerns about vendors consolidation since Visa signed $200m contract with Infosys in India. Given RS Software is heavily dependent on Visa, whatas your take on the same? Also if you can quantify how much of your business comes from Visa and other clients to give good clarity about client skewness at RS software.
Concern 2:
- Payment industry worldwide has been growing but if we look at RS software and its small base, growth has been quite muted. Management only talks about bottom line improvement but always dodges question about muted topline growth. Can you please clarify on why company is not able to grow? Annual reports always talks about RS Software is a pioneer in payment gateway software providers and shows a very rosy picture but it doesnat gets reflected in Topline.
Concern 3:
- Management in an interview stated that company is having Rs.150crs as cash on its book. This is a big concern for investors as companies core business ROE/ROCE is in high 30as but returns that you might be generating on the cash is less than 8/9%. For last 2 years, management has been talking about using the cash for inorganic expansion. To best of my knowledge, company has neither engaged any consultant nor entered into any due diligence so far even though there are so many opportunities in India itself. Whatas the update on the same apart from the fact that for last 2years you have only been scouting opportunities?
Concern 4:
- Recent deals in payment industry shows this is one of the emerging industries to be in. PayTm money raising was successful coz they were innovative in their approach. RS software is lagging way behind in terms of innovation. My question is what differentiates RS software from other payment gateways. What is the business moat for the company? And if there is a unique business moat then why RS is not able to leverage on the same. RS is still a very very small player in the industry despite having rich industry experience.
Also please comment on how RS is looking to accelerate top line growth.
On Mon, Feb 2, 2015 at 4:42 PM, Vijendra Kumar Surana <VijendraS@rssoftware.co.in> wrote:
Response to the Querries
The revenues shift can be attributed to the fact that as the company starts executing more business from India location which is a cost effective geography for us as well as customer, this may not be reflected by way of impact on top line but has tremendous positive impact on bottom line which you would have seen in past quarters. We have worked to improve our cost structure and margin as reflected in our published quarterly results.
We have been focussed on one large customer but we are gradually approaching and making a good progress with other large players.
As a company we have focussed on the performance of our company in terms of services we offer and are continuing to do so.
Regards
Vijen
On 02-Feb-2015, at 5:59 pm,
Dear Sir,
Thanks for your quick response, however my queries remained unanswered.
Point No. 1
My concern is on the top line, what are your strategy to grow the topline.
Point no 2
Dependency on VISA - how much as a % does it come from single customer VISA. How has it changes over previous 2 years and how much our dependency will come down over next 2 years.
Point No. 3
What are the plans/Strategy on the Cash Book.
From: âVijendra Kumar Suranaâ <VijendraS@rssoftware.co.in> Date: 02-Feb-2015 9:30 pm Subject: Re: Questions for RS
I tried to respond to your queries on top line which is dependent on execution model in software services industry and is inversely proportional to the margins
Further company is adding new customers as well through organic and inorganic means
The available cash is planned to be utilised for such inorganic acquisitions
I would not comment on any specific customer as the same is subject to confidentiality requirements but please note that one large customer contributes to over 80% of our top line
Regards
Vijendra Surana
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