Vradharajan- look this video. Mr. Jain is talking of de-risking by venturing into different orbits of payment system and apparently saying transition will happen in fy16 itself.
I think we should dig more because valuations can’t be any better if some changes are coming up
@jainaj
I looked at the video and also listened to the conf call post Q4 - I think I see at least a double digit revenue increase and given op. leverage, it should be 15 % EPS at the very least in CC terms.
And payments is a fast growing industry where there are lots of action happening every day - infact, I ran through visa transcripts too on seeking alpha and it looks like APAC is a big growth driver for visa. I do know from glass door reviews that RS works extensively with visa in singapore too.
The thing I hate is that the MD talks mother hood and apple pie all the time and it’s difficult to make out tactictal progress. I am invested and post Q1, I plan to add more if he delivers 15% revenue growth and adds new clients. At this price, there is nothing to lose.
I used to have RS for sometime before bailing out. What drove me crazy was that Mr. Jain in his interviews never addressed the question of lack of top line growth. His interviews created zero confidence in me and I waited quarter after quarter to listen to the same spin and the double digit EPS growth. I got the odd reply from CS and there were promises of inorganic growth but the continued fall and inaction plus employee cost reduction meant that was the last straw and I bailed out booking loss.
1 Like
@KS16 Hi I am assuming since you booked a loss in RS your holding period was less than a year. I agree Rs has not shown any sales growth last year but its last 3 year sales cagr has been around 12.5%. Dont you think one year is too short a time frame to judge a business apart from muted top line the company looks great on all other counts please correct me if i am wrong.
I feel being in payment space which has tremendous growth potential it can be a multibagger as it is available today at reasonable valuation.
In a recent interview Mr. Jain mentioned about working with apple pay to quote him “As these companies are building themselves for the e-commerce space there needs to be a parallel build for payment companies to be able to connect commerce and payments together. You have heard of Apple Pay recently being launched globally and we are an integrator for the Apple Pay with the merchants and with the acquirer community. Apple spent last year about USD 25 billion on their developer community. We see this trend moving forward and if we were to transition you are looking for the longer term picture of the company, we look at ourselves on one hand continuing to work with the core system in the payments of authorisation and settlement and at the same time leveraging this knowledge to build on to analytics and the social media.”
The current market cap is around 450 cr and is available at close to 7x earnings which i feel doesnot justify the potential of growth RS has. I could be completely wrong but i think the odds are in favor of the one who would invest at these levels.
Disc : Invested from much lower levels
1 Like
@tarangmehta. Went through that interview again. Pasting two specific Questions and answers of Mr.Jain on revenue growth below.
Why is he dancing around that revenue growth topic so many times? He did it all year and continues to do it. When asked about revenue growth, he always talks about profitability. Inorganic growth was promised at least 3 quarters before. Agreed, one has to find the right firm at the right price but all other ‘keep your flock together’ approach of higher dividends/split etc esp timing of all that (after results, when the price was tanking, such announcements used to come) made me jittery
*** Coming back to my exit, yes less than an year. That said, I think the downside from here is perhaps limited and from that point I can agree with you. I should have made a re-entry back in the 150s but I think it will come there, when the markets dip. You seem to have plenty of cushion in the buying price, having invested at lower levels and obviously, it is >1 year since the southern sojourn of RS is the dominant theme in the graph of this year.
Menaka: Your first half revenue growth was barely 2 percent, this quarter gone by revenue has shrunk, can you tell me what revenue growth you will end FY15 with, what is your expectation for revenue growth is for FY16 and also can you tell me what the margin picture looks like because that data we don’t have as of yet?
A: We look at this year with a growth in our profitability of about 22 percent year-on-year (YoY). That is where we expect to end the fiscal year. We see a continuing trend for ourselves in the next fiscal and we see an improving trend beyond that as we are launching our M&A strategy. We are in advanced stages of it.
Menaka: Could you give me specific numbers, what is the FY16 revenue target, what is the margin expectation for this year when you close it and the margin expectation for next year in terms of growth?
A: Our margin expectation for this year for this quarter has been 27 percent for the operating margin level. I think for the year it will be an average of about 25 percent for our operating margin levels. In terms of our FY16 and FY17, what I am trying to communicate here is that we are transitioning our strategy in order to expand into the digital payments opportunity and that is an important factor for the investor community.
1 Like
@varadharajanr @KS16 @tarangmehta
Have been invested in this for long and obviously at much lower levels but to me obviously the main worry is top line growth. For smaller companies it’s important that they grow and margin improvements should either come from operating leverage or operating efficiencies.
Even I am worried about the muted top line growth and specially because of client concentration. VISA Is definitely growing but it’s not reflecting in Rs soft growth.
However, purely looking at financials it looks good given EV of 250 crs and ebitda of 110 crs… Also trailing PE of 7also gives comfort. They need to come up with some growth strategy else it’s better to watch from the sidelines.
Few observations
-
Mr.Launder sold 5000 shares out of 68400 at appx 215 Rs. during Mar 2015.
-
Shital Kumar Jain sold 4000 shares at appx 275 Rs. (adjusted for split) in Aug 2014
Selling didn’t get in big amounts of money! Then selling indicates fair price or overpriced stock?
Just thinking if the insiders feel its fairly priced or over priced in that range of 250 Rs. -
Chairman heads the remuneration committee! So effectively he fixes his own remuneration!
-
Independent directors seem to not be so independent.
Hi All,
The problems with RS software (due to which stock is languishing at such low levels) are -
- Poor growth over last 1,2 and 3 years… Last 3 year CAGR in USD terms is 4% which is terrible for a company in a sunrise industry which is supposedly growing extremely well (as per Mgt)
Data Source- http://www.rssoftware.com/investors/highlights
-
Terrible last quarter where sales de-grew both YoY and QoQ
If we look at Visa (RS’s largest customer) quarterly numbers, there is growth in both Revenues and Expenses, indicating that maybe Visa is reducing work to RS
Data Source- http://financials.morningstar.com/income-statement/is.html?t=V®ion=USA&culture=en_US -
Company hoarding cash - neither doing any acquisition nor giving it back to shareholders
-
Management not sure how future growth will come from
And to me, all 4 issues look serious and hence, stock looks an avoid unless atleast a few of these issues gets resolved.
listen to the Q4 conf call - they are shifting their revenues from on shore to offshore where margins are much higher - that’s you are seeing a higher margin. Per se, that’s not an issue if growth picks up eventually - changing product mix in favour of higher profits is a good sign for shareholders provided there is no ceiling on that.
it’s all in the price - at 4 x FY 15 ex-cash, it’s priced for extinction. would’nt you say ?
I tried to do some back of the envelope calculations below estimating onsite employee salary at the higher side.Assumptions 30$ per hour offshore rate and USD at 65Rs and 22 working days a month.
Revenue for a person at offshore 30$/hr=30x8x22=5280 x 65=343200
Offshore salary for the person 1000$=65000
Revenue for a person at onsite 110$/hr=110x8x22=19360 x 65=1258400
Onsite employee salary 8000$=8000x65=520000
Even though margins are higher for offshore, keeping a person at onsite will always give higher revenue and higher profit in absolute terms, unless client is asking for a cost cutting (as they always do)would you move your employees offshore ?
I agree valuations are quite attractive, but just wanted your views on shifting revenues from onsite to offshore.
Disclosure - Holding for more than a year from 30-35% lower levels than CMP
Agree with Vardha here, Current price is being too pessimistic expecting de-growth in sales and profit.
Mis allocation of cash is a risk, the bigger risk is management not doing what it has been talking for last 5-6 quarters i.e de risking client concentration & improving top line (May be it’s an ability issue)
Disc - Invested at CMP
I have worked in the payments industry and this is the typical trend - on a electronic payment txn, Visa/MC would earn around 8 to 14 bps of the txn value. (The lions share would be kept by the card issuer as he bears the risk of default, the merchant acquirer would earn around 20 bps) If RS is just a processor for Visa, then they would be paying a flat per txn processing fee. This too could be on a sliding scale, getting lesser per txn as the no. of txns. increase. That could explain the flat top line if one assumes that RS is not an exclusive processor for Visa. What baffles me is the claim that they were doing onsite business which is being moved offshore now. For a processing business, it makes no sense to have it in a high cost location. It has to be in a low cost location.
I agree with the others that Mr. Jain skirts around questions about the top-line growth which only means that he has nothing to brag about. Wouldn’t be surprised if Q1 numbers are disappointing and the stock tanks.
Valuation is low, but never knew this is at - 4 x FY 15 ex-cash
Can you please share the calculations for the same?
Ya…I was so surprised when they said onsite business moving to offshore 
@Vradharajan
Mohnish Pabrai- Low risk - high uncertainity. RS Software at this point of time looks this category stock. Do you concur?
1 Like
Guys, would be great if we can first understand their business. Rs software is not a payment gateway like PayPal etc… They are the software makers that runs the payment gateway. So their revenue does not depend on number of transactions.
Probably the reason why they kept the people onshore. For them. In a recent concall, management said visa had entered into an exclusive tie up with them which Rs soft has negotiated and now they can enter into contract with other players too.
In my view management is hoarding cash to get high valuation I case of an M&A. Management claims they are in this business for past 20 years but they have managed to generate only 400 crs of revenue. Raises lot of questions.
IMHO this is more of value play unless management does something astonishing with the cash they are hoarding. Value can vanish in no time Incase they don’t report growth and entire benefit of moving offshore is in financials.
Best
KP
I don’t think this warrants a look now.
Had invested earlier and the prime driver was:
- Employee costs were rising quarter by quarter (think as one of the most
important thing to look at an IT company) - Hiring was taking place as was being updated on their website
Don’t think in current scenario both are happening and they would face
challenges going forward as the single client risk is huge.
As per my information Visa has started it’s own captive center in Bangalore. So not sure if the project outflow would be the same to their existing vendors. Even if they do, my understanding is they will only confine to large players. Recently one of my friends who was working in a small firm handling Visa project, had to switch because Visa stopped giving projects.
knock off Rs. 150 Cr. cash from Rs. 450 Cr. map and you get Rs. 300 Cr. - at 68 Cr. earnings for FY 15, it’s a little more than 4.5 right ?
1 Like
Can you share what is their PG called?
Or are you saying that they are maintaining the uptime of someone else’s PG, say Visa. In which case why would they want to do a maintenance job onsite?