CGVAK Software & Exports Ltd - Niche Microcap IT

[Manojeet_Das]

CG-VAK is providing cutting-edge solutions for more than 25 years to companies around the globe.
They are a group of around 300 people thriving on the 3 tenets “IDEATE, INNOVATE, CREATE”.

They help transform businesses and organizations by delivering Digital Innovation, Product Innovation, and Modernization at business speed.

They are growing continuously quarter after quarter as well as Year after Year.

Mcap - 175 Cr. Promoter Holding is 53.64%. The free float Market cap is around 81 Cr

In my opinion, what is the differentiating factor is considering the size of the company:

• Writes Blog

• Case Studies. One case study example - Automated Email System for Marketing

Management

The company is managed by a well-experienced Board of Directors who have vast experience in creating many success stories in varied businesses.

They have over 30 years of business experience including 23 years in the IT business, Manufacturing and International trade. The business units are headed by Vice Presidents and Managers who are well-qualified and experienced in their respective fields.

Qualitative thought: A brief description of each member on their website Management Info. Very few companies under a 200 Cr Market Cap provide this information.

Resource retaining is always a challenge for any IT company. If we see this company’s top-level management, all are associated with this company for a long time which is eventually benefiting to company

Company Reviews from Employees

Glassdoor

Google

Financials

The company did its highest-ever quarterly sales with a decent margin of 22.66%

Sales: 14% CAGR over 3 years. 54% CAGR over TTM
Profits: 36% CAGR over 3 years. 57% over TTM
Margins: Maintained over 22% for 3 consecutive years. At their highest margin of 25% this year.

Triggers

1. Last 3-4 quarters, each quarterly revenue number has been their highest ever. Benefits of operating leverage kicking in
2. Oct 2021: 90 cr Market Cap company buying a 15 cr office with 25 cr cash on the balance sheet
3. They are hiring aggressively - 287 employees v 240 YoY AR 22. Saw many LinkedIn and Twitter Hiring Posts
4. Promoter Buying - They are buying from the open market every quarter for the last two years
   
   

Risks

From their AR one major thing seems is the CEO and his wife are taking 2.2 Cr - 2.6 Cr (1.81Cr in remuneration and the rest as rent as detailed in the third-party transaction) which is around 21% of TTM net profits

Investment disclosures

Initial entry at around 286 Rs.
Invested: Allocated around 7% of my Portfolio at an average of 315 rs.
Want to take the allocation to around 10% if everything goes well

Please feel free to add/correct any information if I missed any.

[nav_1996]

Any reason why they are a micro company even after 25 years? In 28 years Cognizant became a 30B USD company.

[dm88]

Thank you for the write up! Had a few questions. Would be great if you can answer some of those.

1. Who are the clients of this company?
2. Which Geographies do their export their products to ?
3. What percentage of sales is domestic and what is the export percentage.
4. Are their margins comparable with their peers ?
5. Are these margins sustainable going forward too?

Thanks!

[Sajal_Singh]

What is the Durable competitive advantage for this company, is it sustainable over long period of time, why the business is doing which more established players are not doing.

[jothi_basu]

Low debt/ zero debt is another advantage… What advantage it had in technology to sustain it for a long time…

Disc: Tracking…

[Manojeet_Das]

North America contributed 80% and the Rest of the world 20%.
I don’t know about other questions. It’s a microcap with very less information.
We can keep it on track. Let’s see what it does in the coming years.

[rupeshtatiya]

AGM22

• The company is continuously giving dividend since 2012
• Very little revenue comes from ITeS, majority revenue comes from software services.
• Company acquired 45 new customers in FY22 and acquired 15 new customers in Apr-Aug 2022
• Repeat business is good, 90% revenue comes from repeat customers. The contracts are yearly in nature.
• The company is aggressively looking to expand into geographies other than US
• Company has acquired land and building (10,000 sqft) in Coimbatore at the cost of 17.5cr. Company is still not using this property, how to use this land is in planning stage. New premises can accommodate 700 employees when fully constructed and used.
• Revenue split by segment - Healthcare (23%), BFSI (8%), Telecom (18%), Technology, Hospitality, Real Estate, Transportation - 1-2% each.
• Order book as of date of AGM was 26cr, 22cr to be executed in FY23.
• Sales pipeline is pretty good as of now, there are recession predictions - so let us see.
• The company is more of fast follower, we wait, watch and then follow quickly.
• Number of employees as of AGM date - 307 (parent company alone), 15 (onshore employees ?)

Disclosure - Invested, not a buy/sell recommendation, please do your own due diligence, noa a SEBI registered analyst