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ALLSEC Technology - BPO turnaround story

So I came to know about this company when Hitesh Sir mentioned about it in his portfolio, Then upon looking at the numbers I was interested in finding out the reasons for the QoQ incremental profits and the profit margins etc which were out of the ordinary for a BPO company. So I have made a SWOT analysis based on my research and understanding of the company as per below.

Strengths:

  1. Company does HR payroll and HR related outsourced works along with other BPO buisness. Some companies I managed to find using Allsec are Aircel, KPMG, Tata international Limited, Wells Fargo, Tesco, Mondelez, More, STAR TV network,Retreat Capital, etc. These are big companies who give steady revenue stream.

  2. Assuming that Allsec has a per employee based payment structure, Any employee growth in the client company will lead to a incremental revenue for Allsec too.

  3. Company has ISAE 3402 Type II , ISO 27001:2013 and PCI DSS approvals. These approvals are required for payment card and consumer financial data protection. Any Normal BPO wont be able to get financial buisness due to non compliance of these approvals. Also these are Conceptual level based Audits eg: Servers OS, software, Switches, firewall used, and information Security training and compliance for developers and Staff etc.These will be difficult to be obtained by established players as will require a major Overhauling of their IT framework. All these approvals are checked on periodic intervals.

  4. Since It is essentially an extension of the client Company even though they may not be the lowest cost provider. The client will hesitate to switch because of the Time and opportunity cost. Also as mentioend in point 3 , Since it is related to financial Data Clients will prefer to stick with a Known and reliable vendor. Thus Company is able to have Higher Operating margins.

Weakness:

  1. Still depends on export revenue for 27% of total.Any slowdown in these or Indian companies will affect Allsec also. Mitigation is having a diverse customer base which the Company seems to have.

  2. Manpower dependent buisness model. Their attrition rate is 37%. Mitigation is having a solid process for replacing employees. This the company seems to have. Also this is a Moat as New BPO companies will take time to develop such process.

  3. Also emplyoee cost is 64% of total. This may come down as Company Scales up in Size.

  4. Scaling up the business will have huge capex for infrastructure. Company has scaled up in the past, However company needs to be cautious about the same as it has suffered hugely because of sudden decline in buisness. Company seems to be a bit cautious about the same as in the AR they mention as taking only those Buisness which offer Sufficient margins.

Opportunities:

  1. In the present scenario , They offer a lot of value addition to fast growing companies as they can outsource the Non Critical tasks to Allsec and focus on their Business.

  2. It will grow proportional to the underlying clients.

  3. Nowadays Financial Data is digitalised and there is a growing demand for Information Security in Organizations. Allsec is perfectly situated to take benefit for complying with these requirements.

  4. Other Companies will Offload Payroll and financial processing to Allsec to take advantage of the financial Compliance. PCI DSS compliance alone will cost around 25 Lakhs.

Threats:

  1. Bigger companies developing and offering more feature rich solutions. e.g Eclerx offers similar facilites and also provides analytics and information processing.

  2. Any Informational/ Financial leak will cause a Huge loss of revenue and trust.

  3. Slowdown will huge affect the revenues.

During this research I also managed to research on Eclerx which I think has a similar Buisness model and was impressed by their growth. They also have had a great QoQ growth as well as high OPM, ROCE , with Lower Employee Cost around 40%. They also have a moat based on Knowledge processing.

Would love to hear other VP’s feedback on the company and on this research.

Disc: Invested in Allsec and Eclerx

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Great post, Alphin. One nit-pick though. The cost for PCI-DSS is not as high as 5 Cr. It can be done for less than 25 lakhs per year.

Neeraj, thanks for the input. I got the cost from searching online. Do you work in IT field?

Yes, our company gets it done every year so I know.

Sorry for the misunderstanding. Allsec mentions they undergo remote Vulnerability testing hence they are maybe level 2,3, or 4.

Vulnerability assessment and penetration testing are part of the PCI-DSS requirements. Braintree is quoting US numbers and that too on the higher side. Their business depends on it :wink:

Why the tax rate is on the lower side? Is it cause of a concern?
Also i don’t see any dividends being distributed so far…

Where did you get the information about clients for AllSec. Can you please share the source ?

I have done my own research, based on it.

There is a portal web address of Allsec where they host website for employees of these companies for login to payroll and HR.I forgot the actual domain.

I did a Google search with site:“domain” to find these companies login pages.

Go to Google and search site:allsechro.com

Thanks for quick response. Will check

This does not give a complete list. Allsec provides payroll processing for our company and our site does not start with allsechro!!!

Yes I know, I have mentioned that “Some companies I managed to find”

Could you share your company and maybe other company names not on the list. And also some scuttle butt with Allsec guys.

I used to work with KPMG until 2013. KPMG had all their HR and payroll work outsourced to AllSec. Their portal was quite simple and stable from what I remember, although the UI was from 1980s. But this was 3 years ago.

(21-Sep-2016) Allsec Technologies Launches AML-as-a-Service: Outcomes-driven Offerings for Global Banks

“Allsec’s AML-as-a-Service disrupts current models of BPO engagement—where the per-seat model is widely prevalent,” said Jeff Brown, Senior Vice President at Allsec. “We wanted to bring performance and accountability into the game, by delivering an outcomes-based variable service offering. We take out the bloat from the engagement by using tools and smart processes, thereby delivering more outcomes quicker and at substantially less cost than in-house.”
Full text at

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@Alphin: How do you compare Allsec to Firstsource Solutions for long term? Firstsource have a bigger market cap, more turnover, better profits, consistency and is available for cheaper [valuation wise] in the market. Firstsource recent acquisitions will be bring in better revenues for the company in the coming years. Maybe @hitesh2710 ji can share his thoughts for a long term perspective as he is invested in both the businesses.

@hitesh2710,

How can you be confident about the stability of the earnings considering the fact the topline is volatile since 2012. Thnks.

During research for Allsec I had also checked first source, the reason I preferred Allsec was the moat it had due to HR and payroll function. You can read more about such moat in five rules of stock investing by PAT DORSEY section of business processing firms.

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Thank you for letting me know. I agree with you that companies are hesitant to change the payroll function but we must also factor in that Allsec had this moat from years. Only thing concerns me is inconsistency of Allsec. Let’s hope the company actually turn-around this time. Firstsource does provides Workforce Management services and they may come into HR & Payroll directly or via any acquisitions later on. I’ve been reading more about the business processing firms recently and didn’t knew that book had a separate section for it. I’ll go and read that book first.

Good results from allsec for q2 fy 17.

revenues up to 82 crores for q2 fy 17 from 55 crores in q2 fy 16.

net profits up to 16 crores from 9 crores in same period.

q on q also figures look good.

Half yearly eps at 19 rs per share.

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