Anindya,
was trying to find out the list of clients they are dealing with, but looks like they don’t want to disclose their clients in public, seems logical to me…may be avoiding competition.
Hi Shak,
RS software gets most of it’s revenue from VISA,there is always a risk of large dependence on a single client.
This company is in business for quite a long time , hope this time management is able to keep up this kind of growth and scale up.Software companies main source of profit growth are it’s human resources,however looks like there was a decrease in headcount last year and i can’t match the attrition and headcount addition numbers to arrive at total headcount mentioned in A.R
Still as long as profit keeps growing at this pace, RS looks like a good stock to hold.
Look at the numbers and balance sheet. RSS has done quite well in tough business environment. Going forward it is only reasonable to expect that it will do well in the niche e-payment domain. It’s also sitting on the cash and there are chances that It might undertake some confidence building measures like special dividend or bunus as promoters are trying hard for re-rating so the short outlook looks good. AGM is on 18th July. Let’s see how it plays out.
Disc: Holding and may add on dips.
2012,2013 RS software was listed in best under a billion asian comp: copied and pasted under
RS Software was a proud recipient for a second consecutive year at the Forbes Asia Best Under A Billion 2013 Award Ceremony and Dinner held at the Shangri-la Hotel Singapore on October 29, 2013. RS was represented by Vijendra Surana, our CFO and Mohammad Azhar, AGM (Account Mgmt & Service Delivery). A significant highlight this year was the invitation extended to Mr. Surana as part of an exclusive group of invitees, to a private Economic Roundtable with Mr. Christopher Forbes, Vice Chairman of Forbes Media LLC and Mr. Tim Ferguson, Editor of Forbes Asia, to discuss Asia Pacificâs economic outlook in 2014.
2014-if results are good then hopefully it may continue this year.
Already the mgt is upbeat about cmg quarters, with dolly adding to her stake i am seeing something big happening:
Disc: RSS -significant part of my portfolio
What can be the impact of this news on business of VISA and subsequently RS software
This news item is negative for VISA and MasterCard but potentially positive for RSS as they can have a new client in terms of NPCI but depends on RSS’ terms of agreement with their largest client VISA.
One of the issues that is see in this company is the continued issue of warrants to the promoters. Why does a cash rich company with no immediate plans to invest the cash, issue convertible warrants to the promoters? Why are the promoters not buying from the open market if they are so convinced about the future. The equity dilution by the way of convertible warrants has been punitive to the minority shareholders in the last few years. The trend of equity dilution doesn’t look to coming to an end soon in my opinion.
The market will discount such moves and the valuations will always trail other IT companies where the corporate governance is far superior.
They may acquire/buyout, there is definitely something cooking up…“other IT companies where the corporate governance”- i will give this company sometime,see big players have stake in RSS-slg international oppur fund was the latest entrant last qtr/along with dolly khanna increasing her stake by almost 1%,they must have done their work before investing - valuations are still cheap, definitely it doesnt deserve a p/e of 7. seniors of valuepickr are welcome to share their views.
Yes. I agree that the promoters should not issue warrants to themselves at lower than market prices and instead buy from the open markets and their compensation should also not be too high with respect to the earnings of the firm and industry practices. But unfortunately this doesn’t happen too often.Regarding warrant issue their argument is, as usual,that to retain the staff in the face of stiff competition and to align their interest with company performance they do so. 
These are some of the negatives with the company.
but despite this it’s also a fact that in last five years Market Cap of RSS has increased from 24 cr to 373 cr. Apart from this, if everything is fine with the company, with the kind of financial numbers that it has, will it still be available at this price? with the kind of market frenzy that we have seen recently, it’s a prime candidate for re-rating even with these negatives.
yeah i second you Aksh, thats what i am coming at, management negatives(as some here have potrayed) why would forbes list it as one among the best in under billion asian companies-that too for 2 consecutive years.This being a niche player in epayment despite its share of negatives will atleast double from present valuations.lets see what q1 has in store for us.
I think Promoters share holding was about 25% in 2009 and in 2014 its 39.3%, an increase of 14% over 5 years. Interestingly in 2009 10lac shares were issued as preferential allotment at Rs 19.5 and again 2011-12 another 15.5 lac shares were issued in preferential allotment at Rs 52. Thats about 20% of the total equity of the company. That means 5% shares were sold at some profit. This looks like very unethical practice. Are my numbers correct?
One of the issues that is see in this company is the continued issue of warrants to the promoters. Why does a cash rich company with no immediate plans to invest the cash, issue convertible warrants to the promoters? Why are the promoters not buying from the open market if they are so convinced about the future. The equity dilution by the way of convertible warrants has been punitive to the minority shareholders in the last few years. The trend of equity dilution doesn’t look to coming to an end soon in my opinion.
The market will discount such moves and the valuations will always trail other IT companies where the corporate governance is far superior.
**All, ** Thanks-Mahesh
Shak/Guys
P Sharma has raised a red flag which we/investors shouldn’t ignore…
He is a well wisher n market veteran…
He has just put forth his views n cautioned us regarding promoters which in turn affects the valuations…
Rest is up to us…
Regards
mallikarjun
disclosure - not invested… Was about to, since the stock cropped up in my screener…thanku…
Although I would agree that Management Quality is not top class in this counter, I would like to inform that promoters held 19.6% sharesin December 2008 and after allotting roughly 20% shares throughpreferentialroute to themselves, their equity holding has reached close to 39%. They never sold 5% shares in the market after making preferential allotment to themselves.
Of course, making preferential allotment in a company that does not require cash is not good for minority shareholders (currently company has more than 50 crore in cash). The flip side is that one would be uncomfortable holding a small company with 20% promoter shareholding. The best one can hope is that promoters don’t become greedy from hereonwardand allot another large chunk of shares through preferential allotment.
Thanks for that correction Gyan. Sorry, I should have looked in a little bit more detail about the history of the promoter holding, my bad.
Disc: I sold all my RS Software shares since I needed fund to buy BEML.
sharesin throughpreferentialroute hereonwardand
Thanks Gyan for digging deeper in the issue of preferential allotment. One possible explanation could be that the promoters also might have been uncomfortable with their low holdings in the business which was about to witness explosive growth and so to thwart any possible take over attempt they would have issued preferential allotment to themselves. This is a practice followed by many promoters with low holdings in the past. It would be interesting to know when exactly preferential allotment was done and what was the market rate then. A quick look shows that market price was 19 or so in 2009 and 40-60 in 2011-12. Apart from this, don’t we have SEBI rules which would make sure that preferential allotment doesn’t happen at lower than the prevailing market price?
SEBI rule was never violated for preferential allotment. As per SEBI rules, pref allotment can be done at the average price of last six months. In 2011-12, pref allotment was done at 52, and at the time of allotment the share price was around 60. Of course after the news of pref allotment, the share doubled in no time(less than a month), and kept on going up untill it hit 175 before taking a nosedive to the levels of 110.
Discl - Hold 5 odd precent in my portfolio.
qtrly dividend payers, hopefully next year 8rs…gyanji, financially the company seems good, balance sheet is good so far, e-payment industry has a very good potential,i am betting on this one.disc: i hold 10% of RSS in my portfolio, rest of my stocks are doing well so i am willing to take a little risk ;-))
I am not invested in this stock and neither is my aim to discourage anyone from holding or buying this stock.
In my opinion, what the promoters are doing doesn’t seem to make sense to me. In a company which needs cash to expand operations, the promoter pumping in cash via convertible warrants is a good move as the cash raised would be utilised prudently. In either the 2008-09 or 2009-10 AR ( i don’t remember which one) there is a statement that the money raise via convertible warrants is lying in ICICI bank. Why do it if you don’t need money?
The shares outstanding in FY 2008-2009 when the first allotment was made is 76.64 lacs. If you adjust this number for the bonus issued(28:100) in 2010 the shares outstanding is 98.1 lacs. It is against this background that you should see this move. A preferential allotment of 25.5 lacs means that the equity was diluted by 26%. There have been further dilutions by the way of ESOP’s but that is the cost of doing business. This is roughly 1 lac year.
The EPS in 2014 was Rs 41. If the equity dilution hadn’t happened, then the EPS would have been close to Rs 52. A person holding 100 shares has lost Rs 1100 of his/her proportional share in the profits of the company and the same has been transferred to the promoters books.
All i am trying to say that there are good and bad equity dilutions and as investors these moves tell us a lot about the promoters. What is stopping the promoters to continue doing this till they achieve a shareholding of 50%? Will the board stand up and not allow it? We can’t tell but do previous moves tell us something?
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@P Sharma,
Your views are most welcome, and we truly appreciate it. My thoughts on the subject. I agree that when equity is issued at a market price in a business growing at 40%-50% average ROCE, It’s the costliest form of capital at the cost of rest of the shareholders and hugely benefiting the one who is issued this equity.
But Let’s try to understand why promoters are issuing equity to themselves and what it means for us…
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Their low holding makes them unsecured and they want to raise their holding. They can’t go through market because it would shoot up the price when market notices that promoters are buying heavily and business is growing rapidly. It will also increase the risk of take over bid. It they want to increase the stack without market noticing it, they again have to suppress the earnings, which also is highly unethical. so what’s the way out? How would you do if you were to increase your stack in a rapidly growing business from 20% to 40% and may be more?
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They want to benefit more from the rapidly growing business. So when preferential allotment in heavy quantity happens it’s also a clear signal that promoters are showing confidence in the business going forward. The Promoters would make more money but as a shore holder you will also make money. Your interests, as a share holder, are more aligned with the interests of the promoters. Why would you jump off the boat just then?
In October 2011, when this thread was started by Saurabh the MCap was 61 cr and now it’s 368 cr, 6 bagger in less than 3 years and market was dead during these years. Isn’t it that we are missing a big picture over some smaller issues which we can’t control anyway. I agree that there are some issues with the management but that’s why it’s available at 7.5 PE, otherwise wouldn’t it be quoting at 20 PE?