agree @Venkat_Rakesh. The company has once again lowered its FY25 guidance, now expecting 12-13% YoY growth—down from 15% in Q2 and over 20% in Q1.
I feel the story isn’t matching the numbers. The company has captured a significant portion of its TAM, yet it seems to be struggling with revenue growth.
Disclosure: I have been invested for a long time but trimmed my position today.
Some observations post the concall:
With the 12-13% guidance for FY25, estimated Q4 revenues are 256-265 Cr.
Computed the segment wise revenue based off past quarters commentaries (used NotebookLM) to arrive at the below. Distribution segment has been flattish last 7 quarters
While the management under promised on guidance and over delivered on results in FY23 & FY24; they have been lowering their guidance each quarter in FY25. (20% → 15% → 12-13%)
Is a pipeline of 507 Cr, ~2x sales good enough? I was reading online that a good SaaS pipeline should be >3x sales. Maybe this explains the additional investment in an SDR team for lead generation.
In the past, this stock had very high valuations because of 1) High growth (>60%) on low base and 2) FY 27 long term guidance of 2000 Cr which implied future growth at 26% CAGR
Because both aren’t happening currently, that may explain the correction.
What I am looking forward to in Q4 concall:
Disc: Invested a small amount for tracking purposes.
RateGain Integrates with Mews to Drive Hotel Efficiency and Revenue Growth
Globally
https://www.bseindia.com/xml-data/corpfiling/AttachLive/49acadec-b5d7-442f-a857-e4f9fc1d9741.pdf
RateGain Launches AI-Powered Digest to Elevate Route Performance
insight for its Airline Customers
Can someone please help why the company’s ROE is low? Usually SaaS companies have high margins & ROE. Is it because that large chunk of money in cash or investment (1200cr) which might not be yielding great returns? or something else too
This is mathematical - they generate profits, which are being put into reserves (and hence add to the equity base- the denominator in RoE). Currently the profits (and cash) are being retained in the Balance Sheet as the mgmt scouts for acquisition options. The equity base is not generating return, hence numerator is not growing commensurate to the denominator.
The stock has corrected significantly and has around 1200Cr of cash on the balance sheet. EV/EBIDTA is at its lowest. Do you have any thoughts about investing here. Planning to add this as tracking position.
Markets tend to react strongly to downward revisions in guidance, and we’re seeing that play out with RateGain. Over the last year, the company has continuously lowered its guidance; 20% in Q1FY25, 15% in Q2FY25, and now 12-13% in Q3FY25. These frequent downward adjustments often lead to heightened market volatility, as investors typically reassess the company’s growth prospects and profitability.
As for valuation, it’s important to remember that a significant stock correction may not always signal a clear ‘buy’ opportunity. The price at which you find value is subjective and depends on your individual risk tolerance and investment horizon. While the stock might look attractive at lower levels, it’s crucial to evaluate whether the reduced guidance reflects a temporary setback or a more fundamental shift in the company’s trajectory.
One assuring fact is that RateGain is at quite a favorable multiple. Yes, revenue has slowed down, but they are not into just some IT services. I believe they should be able to come out of this with revenue picking up. Guidance is for March 2025 only, but Management did indicate that they struck some new contracts that will take time to reflect. I believe revenue should pick up with time, and this will reflect in the better premiums.
What I like is that company is slowly transforming from distribution company to a technology company. More revenue is coming from data services and tech services, this should translate to higher PAT as they are high margin business. While revenue growth might be around 12-13% I feel PAT growth will be higher. Assuming a conservative PAT growth of 15% for next 3 years, and its available a PE multiple of 25 it looks attractive. Also their revenue retention is around 90% which I feel is quite good, they are also spending on creating AI agents for hotel which can add a lot of value.
Hoever on other side I am still not able to understand the reason behind such a decline in stock price? Is it mostly due to lower guidance? Also anyone know what is the reason behind promoters decline in shareholding in last 2 years?
I somehow believe that fair multiple is about 20x because they have about 1200Crs in B/S. Removing this amount will bring the Market Cap to about 4000 Crs with about FY25E PAT to be about 200Crs. The company does seem cheap but I am not sure if one should consider my above valuation approach. But the fact remains that company is willing to wait out to find proper company for acquisition should be appreciated.
The reason for the Falling Promoter shareholding is that they did a QIP last year.
But I want clarity on a matter is the management sticking with the guidance to double the revenue from FY24 in three years?
PAT growth is more due to huge reserve company is carrying, leading to increase in Other incomes
Company need to take some action with huge surplus of money sitting ideal in the reseve else it will lead to more pain for Stakeholders.
This Quaterly revenue will be in single digit as per the yearly guidance of 12-13% , leading to down-rating in PE
200 cr of profit in FY25 will include around 75 cr of other income, mostly from interest on 1200 cr. So operating part will be around 125. So valuation should be 125*20 + 1200 = 3700 cr
Their TTM Operating profit is 226, post depreciation it will make it to 190 Cr, which translates to a PAT of 152 assuming a tax of around 20%. The current valuation is 5200 cr and cash of 1200 Cr. So this makes 4000Cr valuation of the business and translates to a PE of around 26.
Please current me if my calculations are wrong.
Yes, I think your math is correct and I did miss out one the interest component of the income statement in my previous statement when I mentioned it is currently at 20x
But Coming back to the Current PE 25, it does slightly seems attractive to me as the management has reaffirmed 2000 Crs Revenue Guidance in the previous con-call. Snippet below.
While I don’t believe they can achieve this target in 3 years time from FY24 being previously stated, however I do believe that they can do in 5 years time at a Sales Growth of 16% by the year FY29 with Margin of 25% yielding 500Crs as PAT.
I think they will have impact on the PAT margin next FY once they acquire company
| FY24 | FY25 | FY26 | FY27 | FY28 | FY29 | |
|---|---|---|---|---|---|---|
| Revenue | 957 | 1100 | 1280 | 1480 | 1730 | 2000 |
| PAT Margin | 15% | 20% | 20% | 22% | 25% | 25% |
| PAT | 144 | 220 | 256 | 326 | 433 | 500 |
| Mcap | 5200 | 5200 | 5200 | 5200 | 5200 | |
| P/E | 25 | 20 | 16 | 12 | 10 | |
| PEG | 0.5 | 1.2 | 0.6 | 0.4 | 0.7 |
This is an highly ideal situation if all things go well.
Disclosure: Not Invested, tracking.
