Aurion Pro : Yet another IP product company?

[sahil_vi]

Business

Aurion Pro is an IP product primarily present in banking & fintech, Transit solutions & data center businesses. Let us discuss each segment in detail

Banking & Fintech

They have a suite of offerings which help banks & fintechs in their digital transformation journey. products in Retail banking (Branch transformation: automate services disbursement by solutions like self banking kiosks, customer queue management system),

corporate banking (iCashPro: loan origination, collateral management, limit management, liquidity, trade finance & smart lender: end to end underwriting management),

and treasury management (services and project management for Capital markets, Treasury, Risk
management, and Regulatory needs)

this is the mature part of the biz which has been growing around 15-20% Guidance is for accelerated growth in FY24 in Q4FY23 concall. This biz also has better margins by virtue of being mature (lot of R&D spends for developing & maturing the product have already happened). Margins in Banking are 500 bps above corporate average (so maybe 25-27%). Contribution to revenue is around 52% for this segment.

TIG: Technology innovation group

This is the younger, faster growing part of AurionPro. It has some disparate businesses. Transit open-loop payment systems are a significant part of this revenue segment. Good article to understand movement from closed loop to open loop payment systems in Transit:

Closed-loop versus open-loop payments in mass transit

This requires both the software for backend management of the transit journey of user, for managing the backend of the transit system and the hardware required for the validation of the user journey. Disbursing as well as checking tickets. The fascinating part about this biz is that they are vertically integrated and provide a complete solution to the transit customer with both hardware & software (

On the data center side, they seem to be playing role of consultant & designer of the software side of data center. This is a small but growing part for them.

Overall, TIG is 48% of revenue but growing at 40-50% with 15-17% margins. Due to TIG, corporate growth is lifted to 25-30%.
Revenue breakup:

Growth

The last 8 quarters have seen good execution & growth.

I am generally very skeptical of turnarounds, but when a co has been executing for 8 quarters, i am more inclined to believe their guidance. They have been walking the talk on growth.

The medium term guidance is for 25-30% growth. The guidance for FY24 is for 30-35% growth. The growth will be primarily led by TIG segment growing fast.

IT companies are about converting human knowledge work into sales. One of the leading indicators of growth is staff addition which has been around 400 per quarter

on a base of 2000 employees

Longish answer on growth guidance:

Reason for growth visibility is the movement from closed loop to open loop payment systems

Profitability

Co currently spends 7-8% of revenue as R&D spends. With operating leverage, the strategic direction is to keep the margins stable at 22% or so at corporate level & investment in R&D will accelerate to 10% of sales.

The ROE is around 22% right now with minimal debt.

Quality

I do not want to go as far as to talk about the ‘moats’ in the business but definitely important to understand the quality of the business. We are gauge of the quality of their solution through two ways:

1. Quality of clients. If good clients are using their products, then they must be reasonable products.
   
   
   
   We can see that HDFC, Kotak, federal all use their products.
   OCBC bank is 2nd largest in singapore
   
   

CIMB is 2nd largest in malaysia

Nations trust bank is 7th largest in sri lanka

ADCB is largest bank in UAE

The important thing to note is that aurion has large established banks as customers which lends credence to quality of product

In the TIG segment, Nagpur metro, Noida metro, Kanpur metro, Haryana transport, UP transport are all clients of AurionPro

As ridership increases, they get paid on a per trip basis which IMO should expand TIG segment margins.

2. Analyst ratings
   Chartis is a risk-tech research, analysis & consultant firm.

On chartis rankings, aurionpro is in leadership quadrant for loan origination

Same for collateral management

Same for limits management

Source: Chartis recognizes Integro Technologies as a leader in Credit Lending Operations

it is the only asian It company in this quadrant. FIS is an established leader. Moody’s is an established leader.

3. Partnerships with leading player Finastra: Finastra is offering Integro/Aurionpro’s SmartLender Trade Limits solution alongside its own Trade Innovation solution. Finastra and Integro Technologies to offer comprehensive digitalization and exposure risk offering for trade finance The fact that finastra does this, is proof of quality for aurion pro’s product

4. Winning globally competitive transit RFPs: Aurionpro won the california-integrated travel project Transit RFP for openloop payment systems. SC Soft signs multiple deals under California Integrated Travel Project (Cal-ITP) This is a multi-year, multi-million-dollar opportunity as it has opened for us the market consisting more than 300 transit agencies in the city and counties in the state of California. Aurion was one of the only 3 vendors to win the bid for validators.
   

   
   
   https://www.calitp.org/

We can verify the same on Cal-ITP website: State of California Contracts | California Mobility Marketplace

SC soft is one of the 3 payment devices vendor.

5. Shared infra for payment processing: A very interesting insight came out in Q4FY23. Aurion uses the same transaction processing infra in transit payment product & the banking transaction processing product. This is from Q4FY23 concall for which we dont yet have transcript. This though imo is a core hallmark of a true product company. You should be able to leverage core capabilities across products and that is where the operating leverage of a IT product co comes in

Management

The turnaround in the fortunes of Aurionpro has been around the time that Mr ashish Rai had bought a large stake in the company:

He has been increasing his stake as well over the years and it now stands at 8% or so. He is the guy who gives interviews & answers questions on concalls.
Although as per annual report he is just another leader

but in reality i think his addition both financially & in terms of management bandwidth has been critical in helping aurionpro make the right product pivots (more on this later)

Graduate from IIM Lucknow

Importantly he has good work pedigree. Worked for 8 years at coforge, 4.5 years at finastra. 12 years at FIS as asia head

https://www.linkedin.com/in/ashishrai/?originalSubdomain=sg

He is just continuing to do more of what he did at FIS & finastra at AurionPro

This is the management change thesis. This is also a keyman risk

Valuation

Currently at 15x TTM earnings, 11x FY24 earnings.
Peers are at 21-27x TTM earnings and slower growth rates (last 1-3 years since this is a turnaround)

Risks

1. Intangibles write down
   Until FY21, co used to have cybersecurity business. Screenshot from FY20 annual report.
   

The Cybersecurity business was promising, but needed large investments and the investment needs increased due to COVID-19 and delayed scaling up. This could have held back growth of other stronger parts of Aurionpro. Co thus sold Cybersecurity business in May-21.

Aurionpro Solutions to sell cybersecurity business to Forcepoint

It sold the cybersecurity business to Austin-based software company Forcepoint LLC, USA for $9.6 million (about Rs 71 crore)

From FY21 annual report:

This is visible in balance sheet as write down of other intangible assets

THis should definitely sour the taste of any investors mouth since write down of intangibles & other goodwill can be a way to take money out of business. That is the key risk investors should be aware of. Acquisitions & capitalizing R&D creates these intangibles. Co has stopped capitalizing R&D expenses.

These changes in accounting also seem to coincide roughly with Mr ashish Rai joining which is why i would treat this as a management change.

2. Key man risk: Mr ashish has been responsible for the turnaround as far as i can tell. There is a key man risk wrt his continuation at aurionpro.

3. Most of the competition from india at least have focused on different geographies like intellect on Europe, Aurion on Asia. What happens when they collide. Mr ashish talks about Aurion IP being tier 1 (meaning best among the best). Their client wins do seem to validate that to some extent. But competition remains one of biggest risks specially as geographies overlap for Nucleus, Intellect, Aurion, Newgen

Disclaimer: Invested, biased. Do your own due diligence before investing

[raj1968]

@sahil_vi

THis should definitely sour the taste of any investors mouth since write down of intangibles

They have done big write off in 2015 as well. Also their receivables have started ballooning again(103Cr in FY21 to 199Cr in FY23). Is there a pattern?

Regards,
Raj
Disc: I bought and sold after the receivables part was not answered to my satisfaction in their first call they conducted couple of quarters back.

[Vivek_Shetty]

Thanks a lot for creating this thread and for a thorough introduction. I had found this company in March after coming across an interview of Mr Ashish Rai on Nirmal Bang’s YouTube channel. Was surprised to see that a company that had been growing quite fast over 8 quarters was available for single digit PE. Tried to find any evidence of fraud or egregious wrong doings on the promoter’s side. Promoters had pledged their shares and the intangibles write-off issue surfaced, but didn’t think it counted as fraud, so had invested. It has almost doubled in less than 2 months. Now I’m confused whether to hold or not.
Ashish Rai is the reason I feel they might do well, but the receivables issue is bothering me. If they improve operating cash flows over the next few quarters, it will give me more conviction for the long term.

Disclosure: Holding for now, will not add more till cash flows improve. No transactions in the last month.

[Vivek_Shetty]

Business Outlook of Aurionpro Solutions Limited

Link of Ashish Rai’s interview on YouTube

[rupeshtatiya]

Trejhara was born in FY19 after demerger of Interact DX and Logistics business of Aurion Pro. The owners of both the companies are largely same.

Trejhara →

Please note following points in Trejhara Balance sheet →
The annual depreciation/amortisation charged to P&L account is 1-2cr since the inception.

Now let us looks at Intangible assets →

The amount is ~147cr and 120cr out of 147cr is more than 3 years old.

I think investors should probe/research on depreciation/amortisation policies followed by promoters.

What are the capital advances of 100cr+ in a largely software company?

What are these advances to supplier of 182cr which are 3x FY22 sales? Who are these suppliers?

What is “other” receivables - amounting to 124cr?

I think one should try to find answers to these questions if one is serious about investing in any company promoted by these promoters.

To my amateur eye, it looks like a large part of (non-existent) assets were demerged (read dumped) from Aurion Pro → Trejhara and they are not being written off in P&L. Some of the numbers like capital advances/advance to supplier and other receivables are quite absurd and simply bordering on fraud. Very hard for me to trust this management ever.

Disc - Hold 1 share of Aurion Pro/Trejhara to track developments and learn lessons in corporate governance and frauds.

[Vivek_Shetty]

Great points. Maybe there’s a reason it is so cheap despite being around for a long time and showing good results in the past many quarters.

[nikhil_chowdhary]

Article in business India.

Disc : invested, exited 30% holding in the recent rise

[Vivek_Shetty]

4507ade7-a7d7-4a17-a0d9-41d4f64ef0dc.pdf (1003.1 KB)
Q1 FY24 results seem to be on expected lines considering the published order book.

[Sudhanshu_Shekhar]

@vivek any analysis on the moat in Aurion pro since many mid tier IT companies are in BFSI, transportation sector. There is a risk that company is progressing well only under Ashish Rai. What’s the long term view on the company?

[Vivek_Shetty]

To be honest I’m not aware of a moat. My investment was based on an extreme mispriced opportunity. I don’t have too long term a view on this one, I’ll track the performance quarter on quarter and weigh other available opportunities to make my exit decision. So far the business is doing well, so I’m holding.

[vnandan]

Ditto. The undervalue play was legendary here. Straight out of Intelligent Investor imo. I am also tracking QoQ. For moat,they are trying out doing a full value chain capture thst also fattens the margins. I think over long term, out of their 4 different business domains, 1-2 will completely get killed off. Wait and watch QoQ.

[sujain11]

Just want to add few points on Aurion Pro:

1. With expected sales of Rs 800Cr for FY 24 and Operating margin of 22%, the company can make net profit of Rs 115 with EPS Rs 50 and PE ratio of 23. So, currently stock is reasonably priced and now need to make expectation for coming future growth.
2. What are the products the company have from where its going to have the future growth ?
   The future growth for the company is going to come from the new product launches, where company is spending in R&D and Data center is going to the new segment where the company can have its future growth but it require Capex. Need to understand the same from the companies point of view where its stand now in Data Center business and its commit for investment in this segment.

Banking sector is very promising sector and Aurion pro is going to capitalize on this. Its going to get revenue from product licenses, service and implementation of its product. So, as the economy is going to recover we can see revenue from both India and rest of world, which is going to contribute growth of the company. In the Q4 2023 result we have seen good growth from SAAS and this is going to shut up as product get sold more and new product launched in the future.

I will be watching its quarterly results and future plans of the company (Data center business) , product launches. Like to see management coming up with more information about its plan. Currently I’m holding this stock.

[Vivek_6954]

(406) Aurionpro Solutions Investor and Analyst Meet 2023 - YouTube

A good video to understand the vision of AP well enunciated by new dynamic CEO of AP Ashish Rai ex FIS responsible behind improved performance for last 11 quarters of co.

[SAURABH_SWARAJ]

Hello all respected members of the forum,
Went through the forum, impressive information.

Been going through the company and its financials. Was waiting for the recent Q results. Both YOY growth and QOQ does not seem be as explosive as the market seemed it to be, the increase in the valuation after this thread was created has been almost twice, with an instant 10% increase on May23rd - thread created on May21st by the esteemed @sahil_vi Bhaai, but the growth has not been so. Bel overcommitments whiled.

What do the veterans think ?
Is the value fair ?

Also, views on the Reliance Data Centre development ?
Do you think their resources would lead to an early market domination, leaving only lesser market share for rest and smaller companies like AurionPro ?

[vnandan]

Not a veteran but here’s my take:
This is essentially a turnaround story with tadka of undervaluation. The company rewrote what they wanted to do. They reiterated this in concall and interviews that they carefully studied which niches they had the potential to become market leaders in the long term and were relatively resistant to the wider IT slowdown. They chose 4 verticals and pursued those. In a way, the switched the operating system of the company.
Market was skeptical of the new businesses and unhappy with old, hence the sewer-like valuations. There was also some bad corp. gov. story here in the mix.

What I and some people who caught this round of jump did was catch on to the market’s lagging valuation to our advantage. This has played out quite well. People are not going all in in this stock rather, there is a transition happening in the investment reasons: from undervalued to growth story.

If the businesses of this company pan out as is being monitored QoQ, I will continue to hold.

Current valuation is okay imo. Maybe slightly over but within range. No reason to take action.

The market share is not really the issue here, the pie will grow. IT infra/cloud business is just beginning in India. If Zoho can make a billion dollars squeezing Google’s market share, Reliance can be squeezed too(and they haven’t even started).

[SAURABH_SWARAJ]

Hello,
Spoken like a veteran, surely.
Appreciate your views.

Now, I get that turnaround story.

On the topic of the zoho analogy you shared.
I understand, but that is already known and by everyone by now >> hence priced in the current valuations.
Or do you believe this future growth potential is still not factored in correctly ?
This is based on my readings of the intelligent investor and buying names with margins of safety.

Do correct me if my understanding is wrong.
Here to learn.

Also, no I am not invested. Found the business interesting based on my own idea of the future of IT and India.

[vnandan]

@SAURABH_SWARAJ

I understand, but that is already known and by everyone by now >> hence priced in the current valuations.

If you are referring to AurionPro’s valuation having future growth priced in, then, it’s most definitely not. The current PE today is sitting at ~24. That’s in line with the industry. The reason I said it might be overvalued is due to the Pledged Shares which is not to my liking hence requiring a haircut in the valuation.

Honestly, I am unsure about the trajectory and businesses that are going to catch on. Hence, I am unable to give you a good opinion on future valuations. I’d give it the rest of this FY to make my take long term stance.

Your understanding is not wrong. However, my take on reading of Ben Graham’s take on Margin of Safety(MoS) is slightly different. More along Buffett’s early days, I think.
Graham had a numerical way of thinking about MoS. He lived in an era where he was the pioneer doing this stuff. Data was limited, understanding of ratios was new. So a simple % margin from the current valuation vs intrinsic value was sufficient. But today, that simple approach falls flat due to the ease of access. Think how basic PE ratio is considered today but in that time, it was the “sophisticated” way of valuing companies. So, you need more metrics to look at to evaluate (not necessarily numerically calculate) the margin of safety, to get an “edge” over the market. The way F&O traders use complex strategies to get en edge over others.
Today, Graham’s MoS would not allow one to invest at all.

To answer your question, yes, the MoS from Intelligent Investor’s viewpoint is probably 0.

[Amnesiac]

The posted Chartis quardrants have blurred out rest of the names except for the top few. I was trying to find the original Chartis quardrants to analyse what’s the closest competition esp from India. Does anyone know how to get it?

[Venky_Thiriveedhi]

Aurionpro has acquired Interact DX… It’s a digital engagement product suite seems to be well established product in India and expanding in Asia…It is acquired in all cash deal for a sum of140 Crs… Ashish Rai says it is profit making

Aurionpro acquires Interact DX: A game-changer for digital customer

[vnandan]

Maybe I’m just not read well enough on related parties but this company is marked as related party transaction in the notice with the same promoters. So, they just paid themselves the 140 crores?