RS Software - Will they pay investors too?

A combined reading of the Weekly price chart along with Bollinger band indicator shows that RS software may be on the verge of coming out of a year long downtrend and provides a very good entry point for long term investors as well as positional players to make good gains …maybe even manifold gains too.

I have gone through all the comments on the fundamental analysis of the company…Since the company management has not been very forthcoming with the information about clients and operations, most of the comments are on the basis of suppositions, speculation by boarders.

Therefore, I feel that Technical Analysis is a better way to invest in RS software…

Pl go through the charts and explanations contained thereunder.

Disclosure: I too will be buying the stock once it crosses the reisistace line on weekly charts. Although I intend to hold the stock for a long time, I will be using the breakout line for stoploss…

sad results but what’s worse is they lost a big chunk of their business with visa and revenues have evaporated literally. I am surprised that the company chose to not inform investors about this - no one heard officially that until 2012 visa was their only customer and now again.

with its only customer gone, this has become a pure cash on books play - in such a situation, management might get desperate and either siphon or do a stupid acquisition.

Quite shocked that mgmt thought it fit not to disclose this material event - I exited a while back at a decent profit and was hoping for a re-entry but it looks the core biz has evaported.

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It is sad to see the results just announced.

Charlie Munger had said in of his interviews, if you catch an employee with a hand in the tiller, it is the duty of the management to fire the person. Claims from the employee that he/she will not do it again should not be given any importance because more often than not, people don’t change their behaviour.

A few red flags have been well documented on this thread and as investors we owe it to ourselves to avoid such companies like the plague.

Disc- Not invested

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Agree, it was very evident. Visa building a big offshore center in Bangalore was something in public domain. But mid-cap mania in last 2 years seems to have swept risks under carpet. I see similar issues with some other small cap IT companies who are claiming to be cloud , IoT experts as these are flavor of the season.

The company is worth 157 crores as of today.

rss.pdf (583.6 KB)

So, cash/cash equivalents + current investments = 172 crores. I checked current investment details outlined in the AR. It’s mostly large cap mutual funds. As current investments are valued as on September 30, 2015; owing to the fall… a haircut of atleast 10% is called for. So, we have 100 + (72-7.2) = 165 crores. I haven’t even considered inventory or accounts receivable.

“These special occurrences are now basically non-existent in the market, but Graham’s theories on valuing a company based on tangible assets remain useful.”

  • from Investopedia article on net nets.

Now, I’m fully aware of the cons thanks to Varadha’s deep dive !

  1. Mr. Raj Jain’s ability to never speak clearly about future plans and evade important questions (evident from his TV appearances and http://www.rssoftware.com/collateral/q3_media_comunication2016.pdf this)

  2. if something is in the works in terms of new projects of significant size, when will this materialise ?

Is buying RS an excellent example of investing with a huge margin of safety ? Kindly share your views… I might be looking at this from a very narrow perspective

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I would wait here as the MD himself is saying it will take 18 months - besides, 55 % of your revenues evaporating in one quarter means some more is on the way soon enough. Also, having worked as an investment banker, such a desperate situation forces companeis to over pay for acquisitions, skip diligence details and end up with a big dud - so you can end up losing both the cash and your business in search for a desperate acquisition, much like a tourist alighting at an indian railway station in front of touts.

My big worry is what’s the risk of the cash evaporating because of a mis informed acquisiton ?

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Is this cash REAL? Why they didn’t do acquisitions earlier. Visa account ramp down news was in public domain for so long.

I too agree here with Varadha. The AR speaks of broad picture of payment domain for next 25 years but what plans RS Software has is very important. I feel there are too many unorganized players in this domain. Also when I looked into Polaris Consulting which is also into E Payment the revenue really didn’t increase in last 5 years. It’s stable.

Also, it was wrong on the part of RS Software to go ahead with split when they did knew that Visa going away will have a huge impact on topline/bottom-line. They mislead the investor by doing so. Kellton tech has done 3 acquisitions recent year. It’s not difficult to find a target. Raj Jain is telling about it from past 1.5 years still he didn’t find a target to acquire.

Even if they get a bigger deal from NCPI, one client or concentrated client model will have big dependency. I feel RS Software should focus on the recurring model where none of the client contribute more than 5%.

Let’s wait and see.

RS Software got another contract from NCPI. Also, it added 4 clients in USA

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=5349e1c9-96ae-41f5-a47e-aca124da00c1

But looking at the order size of NCPI, I feel it’s worth waiting for at least couple of quarters to see it reflecting in topline.

Hope he provides relevant information like the type of client and nature of contract regarding the new additions.

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One should avoid investing in this company. Company boast of 25 years of experience however could do much in these 25 years, the price of which they are paying now. Visa constituted 85-90% of their revenue which have now evaporated. I would not be surprised if the stock quotes below 50 soon by next quarters results.

The cash will soon be gone if the promoter continues to run the company in such a way and it continues to be under losses. The Graham analysis might be true BUT it’s based on the predicate that if the market value goes below cash on hand then promoter will wind down the business. In India winding down a business is nearly impossible so the Graham analysis is not apples to apples.
Also if the management is minority share holder unfriendly then all your bets are off. Quick check: when was the last time RS paid a dividend

Disc: no stake

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Any hopes of turnaround on this counter?
Q1 results were broadly disappointing but there was a green shoot in the domestic revenue front.
In the 2016 AR, they’ve mentioned about having acquired 10 new clients and strong focus on domestic payments play.

Disc: Invested

VRO ran Benjamin Graham’s stock filters which has thrown up RS Software as one of the bargain stocks. Guess at the current price levels there is not much downside risk.

84% revenue used to come from VISA. Does these 10 new clients compensate that ?
Did they give any number around the size of these 10 projects ?

my two cents. If they continue making losses ( current loss 20 crs growing at 5% lets say) then it will take less than 3 years for the cash to evaporate. So there is a LOT of downside risk.

Just watch this

This guy talks like Trump! HUGE opportunity, Billions dollars opportunity and all that gibberish!
My hopes for a turnaround here are fading!

Disc: Stuck!

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Investment in RS Software will only make sense once they announce few sizable clients which can accelerate the sales, until them I do not expect much green shoot in this company. Also after seeing his last interview, the chairman only ducks the ball rather than admitting their fault whenever questioned about VISA. Didn’t the same opportunity existed last year to get new clients when VISA was their customer ?

Disc - Hold on a tracking position and don’t plan to invest until they acquire sizable clients.

BTW is anyone aware of who are the Main competitors of RS Software ?