Dear saumilshah
Kalparaj Dharmsi family has not completely exited ,as per latest quarter holdings , though they have trimmed around 1 percent, they still hold around 3 percent ,& I strongly suspect they would have added another 1 percent , making it around 4 percent.
Management has explicitly mentioned, that they are conserving cash ,due to covid uncertainty. A dividend of ₹30 per share is more likely ,than a buyback , which may be taken in the board meeting of Q2 .
Expleo Solutions is a part of the Expleo group. The group has 4-star rating on Glassdoor. The rating goes to 4.4 if one only considers Chennai.
They also have a youtube channel which you can subscribe to - https://www.youtube.com/channel/UCYoFdhN19nFp56YOoNsKRrQ
who is kalparaj dharamsi and what is his claim to fame
Kalpraj Dharmsi has a concentrated portfolio.( Not ideal for ordinary mortals) .His fame lies in his hypothesis that ,at any time in the market, there are 100 ten baggers & 10 hundred baggers , waiting to be discovered.
Hi
You can call for top 100 shareholders list and you will not find any dharamshi family names…they have exited completely 3 months back and modt of the holdings has been bought by rajasthan global securites
Rgds
Saumil
Yes you are right, they have exited .
Q3 results will be out by February 2021 , first week. Q4 results are likely to be robust & as per MD in last concall ,a dividend or buyback may be announced. Double digit growth is anticipated in Q1 . I can only make a wild guess on the contours of Q3 results. Most of the IT sector firms have announced robust Q3 results in a usually subdued Quarter. So How will Expleo fare ?
Excellent results on normally subdued quarter ,… 9M EPS is almost more than whole last year EPS…
$th Qtr must be bumper qtr… expected EPS for whole will be in range of 55-60… TTM P/E is below 9… Cheapest valuation in IT Pack…
Result are not great. Revenue is up 6% year on year but down 2% Q on Q.
EPS increase can come from utilization increase etc. But long term EPS growth will track revenue growth in services company.
Other issue I see is that Expleo has other subsidiaries in India. So my guess is that Expleo solutions will be restricted to BFSI. It does not benefit from growth in other verticals.
That’s precisely why i find it interesting. Digitisation in the bfsi segment is a story that will play out over the next few years and at current valuations the upside hasn’t been priced in but the downside has.
And this quarter was expected to be a bit muted but they’ve done pretty well.
Next quarter will be a good reflection of the company. And from Q1 of FY 22 we could see them overperform.
Disc: taken a position today in the bloodbath. Technically it’s at 200 DMA and in the oversold region. Can’t see much downside from here and can see a lot of upside.
But in that case why not Oracle Financial Services. World number 2 in BFS products after Temenos.
Purely risk vs reward. At current valuations if management manage to pull off what they plan to do over the next 3 years then the reward is huge. If they pull off just half what they promise the reward is still huge. And if they underperform then the downside is low. While OFS is obviously a safer bet a lot of the reward has already played out.
This is currently a clear mis pricing in my eyes and I’m attempting to take full advantage of it.
Will I put a huge percent of my networth here? no. But I am willing to part with approx 3 to 5 percent considering the risk reward factors since both the fundamental change and technical factors both seem to be aligning.
The fact it’s in a domain I do understand ie bfsi is a bonus. One of the few IT companies that, atleast for me, is easy to track due to them being in this one niche.
Management change, while being an MNC doesnt make them trustworthy automatically, have potential to lead the company in a positive direction too since historically SQS weren’t great capital allocators. Bonus is no debt and Free cash flow(though it went down off late due to increasing receivables which will need to keep an eye on but the situation over the last year makes that forgivable). Annual reports and management commentary seems positive too.
That being said If Q4 and Q1 aren’t up to par I will consider trimming/exiting my position.
Disc: Not a sebi advisor. Please do your own due diligence.
@Malkd
Since you track this company, I have one query. How come Expleo Solutions became the market leader in next generation software testing services? Why isn’t the big players competing hard? They are already in traditional testing. Is it because next gen software testing market size is very small for them to compete?
@sujay85
It’s always the case with a nascent sector and with an initial small pie. The bigger companies will come in and eat away market share when the pie does get bigger. I track(and own) a company called Muthoot capital too and their aim is digitization. While studying small nbfcs and banks to understand Muthoot capitals prospects better What Id learnt is many of them feel that one of their strengths is they can digitize anew and adopt efficient methods (which would need testing, consultation etc before being rolled out) while the bigger fish are stuck with their current digitzation processes and changing them would take some time(look at the aging digital system of hdfc bank vs idfc first for example). This exerpt from the Nelson hall report explains how expleo are currently ahead of the curve regards this:
Dominique Raviart, IT Services Research Director at NelsonHall, stated, “Expleo has invested ahead of time in AI, and has created several AI use cases backed by proprietary tools and COTS. It has also developed analytics for conducting better testing and automating test creation.”
McConnell continued, “It is vital that although technology is advancing at an unprecedented rate, organisations must embrace it with care, ensuring it compliments best practices processes already in place. We should make sure we are not putting the cart before the horse, AI/ML needs to be leveraged in combination with a well-structured eco-systems of teams, processes and ways of working.”
There will come a time when the bigger companies will come in and eat market share but expleo could have a few quarters/years advantage ahead of them. Whether it pans out is another thing but currently failure looks priced in. The prospects do excite me at cmp
Not seen any post regards the Q2 concall and Q3 earnings presentation so posting here
Positives:
Management mentioned that since they are involved in the testing stage the IT boom of the past few quarters seen by other IT companies will reflect in their numbers with a lag of a few quarters so expect that by Q1 FY 22
Glass ceiling of 76 crores will be broken next year. Expect minimum double digit growth in revenue FY 22
Q3 and Q4 are expected to be muted due to deferral of projects and realisations only in FY 22. So expect Q4 at similar levels as last year but FY 22 will be the growth year
Debtor days improving from Q2 in Q3. Should stay stead now on. Order pipeline is strong but due to covid many deals weren’t closed. Will happen now. No major clients lost
Even when travel expenses and salary cuts come back to normal margins should be maintained above 20 percent.
Europe and USA will start growth again soon. Asia improving already wrt projects though not showing in revenue yet
Insurance vertical performed well though banking slowed down. Should improve soon
Rest covered nicely in the posts above so wont mention
Negatives:
Contingent tax liability of 90 crores hanging over the company. However, they are confident they’ll win the case but could take 2 to 3 years for final settlement of issue.
Q4 should be flat. FY22 will be an improvement but unless management is underpromising (which they could be doing) it’s going to be a low double digit revenue increase and with margins staying constant PAT increase won’t be too much to talk about but at current valuations that’s fine.
They don’t plan on having a dividend policy. And dint disclose their capital allocation plans.
Concall is basically individual investors and a few small funds. So company isn’t on the radar of the bigwigs yet. Tone of some questions showed some very disgruntled shareholders(regards no capital allocation policy, last 12 quarters of revenue ceiling and dividend especially)
Overall, it’s pretty obvious why market is valuing this the way it is. Can’t see much downside considering FY22 should be a good year… but hopefully management is underpromising and tailwinds give a nice upward surprise next few quarters and their push towards automation/ai/RPA gets some traction.
EPS for FY 22 should be around 60 all said and done. And based on earlier guidance they need to grow at approx 20 to 30 percent per year for FY 23, 24, 25 to reach the target EPS they set. Let’s see if they can do it. We ll know the direction they are heading by end of FY 22
Q3 EPS of ₹12.30 seem outstanding in a seasonally subdued quarter. However there is substantial increase in other income ( forex gains & interest income on ₹100 crore cash in hand)
Expleo is likely to post an EPS of ₹50 plus ( ₹55 to ₹60 ) for the current year, while estimated consolidated EPS for next 2 years ,are placed at ₹72 & ₹ 120 respectively .
Double digit growth on Digitalization will kick in Q4 or Q1 .MD in last concall mentioned that cash is being conserved on covid uncertainty & a dividend or buyback in lieu of dividend or cash being ploughed back for acquisition etc ,all options will be considered by the board at Q4 results.
Investors concall is on February 8 & Hope Rohith Balakrishnan will attend & give us , glimpses into the future.
I think that’s a very bullish scenario and high expectations can lead to disappointment. Q4 sounds like it could be flat based on what they’ve said so EPS should remain same as current TTM EPS. FY 22 is exciting but management makes it sound a bit difficult to break 20 percent growth and guided for minimum double digit. For them to hit 72 eps and 120 eps they need to hit 30 percent profit growth in FY 22 and 50 percent on that base in FY 23. I hope that’s the case but I just can’t see it. Maybe over 3 to 4 years we could expect 100 to 120 EPS.
If they can even pull that off ie a 15 to 20 percent CAGR over 3 year
s at current valuations that would be fantastic. Anything more than that and i wouldn’t complain obviously so I hope you are right and a business with no debt and free cash flows in the digitization sector with an MNC parent can easily surprise positively 
The decline of SQS BFSI ( Expleo) began from Q3 of 2016 from a life time high of ₹1296 due to multiple & prolonged headwinds like Brexit, forex losses , recession in the sector etc., With clients postponing, freezing & ramp down of projects.
Covid scnerio has necessitated Digitalization ,a decade ahead of its time. With a strong MNC parent with the financial muscle power of PE investor Ardian , with clear focus on BFSI segments, Estimated consolidated EPS of ₹72 & ₹125 over the coming 2 years seems possible.
This jinx , wherein the company Quarterly turnover has never breached 80 cr mark , will be broken by Q1 as per MD statement in last concall, on attaining double digit growth.
Digitalization, Robotic process automation, Agile , Artificial intelligence & cloud computing have opened new frontiers as well as the contours of Quality assurance have assumed new dimensions.
Headcount has been raised by 35 , this quarter due to strong order pipe line & growth in digital transformation business.Any large order wins can create substantial surge in prices of this small cap MNC.
The coming 5 years seems to be the best ever for Expleo & it’s investors on Digitalization induced surge.
@Balki
You seem to be tracking this company for quite long time. How do you see Expleo Solutions’ (BFSI focused) growth prospects in comparison with Cigniti Technologies’ (Diversified), given that both focus on Specialized Testing services? Cigniti’s main market (80%) seems to be North America, whereas Expleo’s Europe (62%).
