Just a quick point on fundamentals. It is no doubt in good space, but for next 3-4 qtrs there will be stress on bottomline as they will have to start paying taxes, which they were able to save due to accumulated losses. Also, INR strength is also going to hurt them (like any other IT company). This is a good comeback case without doubt. But, sectoral headwinds are pretty strong at the moment. And this bottomline stress for at least next few qtrs can be a major dampener.
“To my mind, the stock price is the least useful information you can track, and it’s the most widely tracked"
“If you can follow only one bit of data, follow the earnings"
- Peter Lynch
“Lynch promises that if you ignore the ups and downs of the market and the endless speculation about interest rates, in the long term (anywhere from five to fifteen years) your portfolio will reward you.”
Excerpt From: Lynch, Peter. “One Up on Wall Street.”
Having all said by great investors it is very difficult to practise when it comes to real world. It requires very brave heart to see the stock diving and yet to hold onto it.
The key to a rational stock price is rational shareholders, both current and prospective.
- Warren Buffet
Even if our partially-owned businesses continue to perform well in an economic sense, there will be years when they perform poorly in the market. At such times our net worth could shrink significantly. We will not be distressed by such a shrinkage; if the businesses continue to look attractive and we have cash available, we simply will add to our holdings at even more favorable prices.
- Warren Buffet
Though we all know these quotes its difficult to follow and Allsec is a good case. I am not saying that Allsec is a business which will be preferred by such legendary investors. I am also not saying that decision to buy will be the correct decision. It may fall further from here. But if fundamentals are good we should not focus on price. Again,
All I am trying to Say is that value investing is not so easy in practice.
Hi heres a question that always intrigued me. do prices follow earnings or lead earnings? I don’t have a definite answer to that.
In terms of an analogy, i am reminded of the tortoise and hare story we read about in school. Prices being the hare are overconfident , have a tendency to run hard and are soon out of breath while the tortoise ( earnings ) trundles along ultimately winning the race. For a part of the race prices are winning and for a part the earnings. If the race continues ad infintum the hare and tortoise will finish as joint winners!
The art part of stock picking comes in identifying when the tortoise is winning and then betting on the hare to overtake the tortoise
P.S - pardon my stupid analogies - am not very good at them as you may have understood by now
@bheeshma (other Allsec investors),
May I know why you are so bullish/convinced on Allsec future prospects ?
The company in their 15-16 annual report mentioned they took a conscious decision to only add clients who are profitable to their business. Also the company in one of quarterly presentation (Q2?) mentioned the significant growth is because of new contracts from existing US customers. Considering that they are making losses couple of years back, I believe they are able to show signifiant profits because of these changes. Do you see similar growth rates going ahead ?
I understand that management is trying to add new clients and expand to new geographies. But, if you see BPOs like Hinduja and First source (including Allsec) their bottom lines has been volatile (last 8 years). In such a case, how do you see earnings visibility in a HR/BPO business (like a bank or HFC - secular story) ?
I am just curious on what am I missing that you did not. Any pointers on business and growth visibility should help.
Allsec stock chart seems to be showing an interesting development on the technical front.
There is a principle called change of polarity. Here what happens is after a sharp run up in stock price which takes out its all time highs, the price tends to extend beyond the earlier top and ultimately the rally loses its fizz. The price gradually drifts down and comes down to the earlier zone of the previous top.
Comments and explanations and disclosure on charts. Such pattern is often seen in many charts of various companies. If the previous top region offers support then it could offer a great entry point for medium to long term investors.
I would agree with hiteshbhai ( who wouldnt!)
Have also read somewhere that nothing is more bullish than a failed head and shoulders. Don’t remember where I read this.
Could be wrong though.
The most interesting thing is that the H&S failure ( we will still have to wait for failure confirmation though) has happened near its 2007 high. A full 10 years ago. The company has gone through a lot of pain and recovered from it. If the 2007 high acts as a floor then as hiteshbhai mentioned this is a nice opportunity.
Its PE is ~10 AFTER it doing 10 bags from 2015 levels. In my opinion its PE should be at least ~18. A great ROCe. Zero debt. and most importantly - zero equity dilution.
The analogy that comes to my mind is Yuvraj Singh. A great player, doing well , suffers from a major disease which takes a toll on him, he fights it - recovers and comes back stronger than ever before.
I would certainly wait for it to test the 2007 high. If it does hold then it would become a proper investment option.
Disc - invested
wouldn’t the Trump’s visa restrictions and anti-outsourcing affect Allsec?
Allsec results were as below
Revenue down 8% q-o-q from 87.73cr to 80.5cr vs 69.66cr in Q4Fy16
EBITDA is down 3.7%
Tax is again lowered due to MAT credit and earlier years credits.
Balance sheet looks good with current investments of 61cr and cash of 29cr.
Stock is trading at 365 ie trailing PE of about 9x
Any guess why it’s revenue is down?
I was thinking that due to doMo, call center work will be more. But result is not proven that.
Is it of any concern that QoQ revenue is down or we can ignore it?
YoY Revenue is up. Profit YoY is also good.
I guess numbers are not bad. We need to see whether this is a one time thing or a trend. Standalone revenue looks decent and degrowth is on consol basis.
I am pretty new to IT sector but if you look at major IT companies, the results are analysed from a Q-o-Q perspective. For companies that have most exposure to other countries, focus is q-o-q growth in constant currency terms.
Coming to Allsec, maybe we can give it some more leeway since it is more of a turnaround story with cheap valuations and decision should not be based on just 1 quarter.
wont this company be impacted due to H1B visa restrictions?
If anyone can answer these questions -
What is the reason for de-growth in their consolidated revenue and pat on q o q basis? Pressure on foreign subsidiary operations due to INR depreciation?
Future plans to move on this higher yearly base i.e. where is next set of growth going to come from? New clients? Acquisitions? Plans to utilize cash? Dividends?
They are growing at tremendous pace on standalone basis. What is contributing towards this healthy growth? Is this sustainable?
How much MAT credit they are still left with? When are they going to start paying full tax? This will have a big impact on their PAT margins.
What are these 69 cr of current investments?
This is a very good story. But we need to assess whether this growth is sustainable. Stock is priced cheap without doubt at 7.9 trailing p/e. Discount cash and investments, it is even more cheaper.
Technically, stock has broken major support levels around 334-350. Head and shoulder target looks to be close to 260-275…with market at highs, and allsec stock being weak, it can fall more due to absence of any strong triggers in near term with overall market correction.
Found a few more clients for Allsec HRO -
Is this Amazon?
Mondelez International -
Retreat Capital (probably Allsec has acquired this company back in 2011…not clear)
Probably these clients have hired Allsec HRO just for their India offices …may be not. Not sure.
It would be great to have a follow up note on the previous discussion on the technicals as the prices seem to have corrected.
From what I understand, none of their employees are on H1B visas.
Thanks. And what about Trump’s backlash against outsourcing. As bulk of business is coming from USA. Will its US customers continue to outsource their processes to Allsec despite Trump’s attempts?
Not entirely sure, but they have a branch in Dallas as well. Maybe they are handling all American business in that office. Even if they are outsourcing these operations to India or Manila, I wonder how Trump would affect that.
Guys…anyone attending AGM on 10th Aug? Have a bunch of questions…