Nucleus software exports limited

Stock Opportunities
68
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69

Poor Performance Continues in Nucleus Software
Hopefully recovers soon

Con-call Highlights -

Nucleus Software Q1 FY 2024-25 Earnings Call Key Takeaways

Financial Performance:

  • Consolidated revenue: Rs. 195.4 crore
  • Consolidated EBIDTA: Rs. 28.8 crore
  • Consolidated PAT: Rs. 30.2 crore
  • Consolidated EPS: Rs. 11.3
  • Standalone revenue: Rs. 181.7 crore
  • Standalone PAT: Rs. 31.2 crore
  • Standalone EPS: Rs. 11.6
  • Order book: Rs. 813.4 crore
  • Cash and cash equivalent as of June 30, 2024: Rs. 920.8 crore

Operational Performance:

  • Added 62 employees during the quarter
  • Revenue mix: 58% domestic, 42% international
  • No customer losses due to repricing initiatives
  • Repricing progress slower than anticipated
  • New customer acquisition yielded no revenue in the last quarter
  • Long lead times for new implementations due to pricing complexity

Future Outlook:

  • Management expressed confidence in bouncing back financially in coming quarters - Continued focus on product licensing and cloud-based services
  • Plans to onboard sales leaders in different regions

Concerns:

  • Decline in topline and bottom line performance
  • Stagnant revenue growth
  • Repricing initiative facing challenges

Other Important Points:

  • Long-term focus over short-term fluctuations
  • Committed to retaining top industry talent
  • Exploring dividend payout and buyback options
  • New product developments include an Islamic version of FinnOne Neo for the Middle East and Malaysia
3 Likes
70

Buyback meeting to be held on 22nd August, 2024 :

Link : https://www.bseindia.com/xml-data/corpfiling/AttachLive/020560ba-1ebf-457d-8011-2fde31fca0ef.pdf

1 Like
71

Not directly related to the fundamentals of Nucleus; wanted to work out the meaning of ā€œNon-institutional investorā€ in a buyback.

Hereā€™s the NSE demand schedule - https://www.nseindia.com/market-data/tender-issue-information?symbol=NUCLEUS&type=Active

Under ā€œbid detailsā€, do the NIIs categorized as ā€œothersā€ mean ordinary investors having shares worth > 200,000 in their demat account on the cutoff date, or they get clubbed with retail investors, and NIIs mean something else?

Now completely off-topic - this was the last buyback before Oct 1 where buyback-flippers had a chance to make real money. Post Oct 1, buyback proceeds will get treated as dividend, and get taxed according to oneā€™s slab, while providing for acquisiton costs to be treated as a capital loss.

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Positives:

  • Nucleus releases a new module/update every year increasing value of product
  • Being in fixed price contracts, the price escalations take time while wage inflation impacts EBITDA margins
  • The contracts are usually 3-7 years long, with repricing followed at the end of the life
  • Considering 2022 as the year of reprising and low EBITDA margins due to ā€œThe Great Resignationā€, the same repricing can be considered to occur from 2025 to 2029
  • The price charts reflect this growth over past 15 years with a flat to downward trend followed by a lumpy growth period
  • ~Rs 500 crores of cash is 16.67% of the MV with no debt, allows for a downside safety in current market conditions
  • The company has de-risked its business in terms of customer concentration, dependence on export sales, etc

Negatives:

  • The CFO is low considering this being a tech company as the receivables is high, and the CFO could have been increased by using working capital
  • The working capital to increase CFO will increase valuations and improve cost of capital, but the company is debt averse and holds cash
  • The foreign subsidiaries do not make CFO as can be seen in their reported financials
  • The company is dependent on BFSI doing well along with IT, both being neglected by the market
  • Promoter selling stake in recent buyback, which is understandable by the fact that the promoter stake is very close to 75%. Arun Jain in non-promoter can be considered a promoter since he is with the company since 1990s. Therefore total stake is 74.3% which should come down after buyback

All-in-all, if the company is available at a good PE can purchase and hold for 4-5 years (2029) to see returns

2 Likes
73

Just will add another point regarding their new product in upcoming Co-Lending space.
Considering Nucleus reputation with their clients and future of Co Lending, I see this as a good growth handle along with Nucleus efforts to penetrate new global territories.

Current PE of 20 is lucrative and I am betting on a re-rating similar to Oracle Finance.
Although no direct comparison but I feel limited downside and a regular cash generating company with only organic growth is a slow and consistent compounder.

2 Likes