Sasken - Not so good company but can be good investment?

Stock Opportunities
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Hi,

I had picked some shres of Sasken in 2010 ans some in 2013. Company has given huge dividends and has done fantastic buy-back. Recently they have brought a new CEO too. But somehow i feel that business is not doing too well or management’s efforts are taking time to show up. I had invested as they were doing buy back giving the logic which could have been summarised like this:“we have accumulated cash in the lastfew years and we do not know how best to use it by investing in our own business.Though we have done some stupid things in the past by investing here and there, we think the best way to deliver returns to our stockholders would be to give it back through buy-back”. I was blown away by the honesty. They have done two buy backs, total of around 90 crores. in FY 2014, they have given 32 rupee dividend per share.

They would still have cash pile because of FCF and majorly from the cash they would have received recently from the arbitration case they won. I have come to know that CFO, Neeta Revankar is a very influential person in Sasken and a very rational lady. They might do anaother buy-back, go for specialdividends etc. Ashish Dhawan has investment in this though in the last 2-3 weeks he sold some. Through sone sales guy of Sasken i came to know that they r making changes in the strategy, but things will take time to show results.

Anyone has any idea? Please pour the info and then we can discuss, thanks in advance

Ashish

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I bought Sasken in May 2012 at Rs110 levels. Over the last 2 years the company has done buy backs and given a total of Rs42/share of dividends. Management is honest. Recently they have won an arbitration for US$30mn = 180crs. They have 130crs of cash end Jun14. So total cash by end of next quarter would be Rs310crs. I think company's market cap is Rs600crs odd.

The business model collapsed over last so many years because of the decline of Nortel Networks and Nokia who were their largest customers. They are re-orienting their business and got a new CEO (Anjan Lahiriformer CEO of IT business in Mindtree). Numbers are yet to look up.

Good clean company whose business is yet to improve. If it has cash it pays dividends or buys back shares. Last 4 days largest shareholder Ashish Dhawan is selling out. Dont know if he knows something that we dont or if he is just cash cashing out. See following bulk deals from moneycontrol. I HAVE DECIDED TO GIVE COMPANY THE BENEFIT OF DOUBT AND SIT TIGHT FOR THE TIME BEING.

The question is who bought Ashish Dhawan's shares. Bajaj Allianz and ICICI Prudential are the other institutional shareholders currently in this stock.

Date Company Client Tran Qty Traded Price
11-Aug-2014 Sasken Comm (BSE) ASHISH DHAWAN SELL 200000 286.00
11-Aug-2014 Sasken Comm (NSE) ASHISH DHAWAN SELL 200000 286.00
08-Aug-2014 Sasken Comm (BSE) ASHISH DHAWAN SELL 378500 301.34
08-Aug-2014 Sasken Comm (NSE) ASHISH DHAWAN SELL 378500 301.34
06-Aug-2014 Sasken Comm (BSE) ASHISH DHAWAN SELL 156000 320.00
06-Aug-2014 Sasken Comm (NSE) ASHISH DHAWAN SELL 180000 320.28
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Hi Venkatesh,

Nice to see someone interested in Sasken. ICICI Pru Mutual Fund has picked up 4% stake in the last 2-3 days, i think this matches the offloading by Mr Ashish Dhawan. I have two questions for u:

1). How do u know they had 130 crores of cash at the end of June 2014?

2). Wont they be paying taxes on 31mn USD they r gonna receive from the arbitration case? If yes, i think we should take 31*0.7 = 21.7 mn USD = 130 crores. These are earlier 130 cr add to 260 crores in balance sheet, correct?

If they have 260 crores, they can go for buy-back + huge dividends. Otherwise they can be wooed by a corporate raider, like what happened with Patni. What do u think?

Ashish

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Hi Ashish,

“ICICI Pru Mutual Fund has picked up 4% stake in last 2-3 days.” Any source please?

Regards,

Vasim

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Please check BSE Insider Trading Disclosures on this stock.

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1). How do u know they had 130 crores of cash at the end of June 2014?

Look at 1QFY15 presentation here.See slide 7 for consolidated balance sheet. June 30, 2014 cash balance = Rs29.9crs + current investments = Rs122.4crs. Both total to Rs152crs of cash.

http://www.sasken.com/results/Q1FY15/Sasken_Q1FY15_results.pdf

2). Wont they be paying taxes on 31mn USD they r gonna receive from the arbitration case? If yes, i think we should take 31*0.7 = 21.7 mn USD = 130 crores. These are earlier 130 cr add to 260 crores in balance sheet, correct?

Yeah maybe we need to adjust for taxes like you say. So Rs130crs + Rs 152crs = Rs282crs and company has a market cap of Rs650crs.

Yes ICICI Prudential MF has purchased majority of what Ashish Dhawan sold.

If they have 260 crores, they can go for buy-back + huge dividends. Otherwise they can be wooed by a corporate raider, like what happened with Patni. What do u think?

I think they will pay dividends. As of corporate raider stuff. Well unlikely. 2 years back when stock was at Rs110 market cap was Rs200crs. That time also cash was Rs170crs odd and no raider came through.

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Yups i checked regarding cash

I think its better they do a buy back, no tax will be applicable, though i m not Sasken’s CFO :slight_smile:

“As of corporate raider stuff. Well unlikely. 2 years back when stock was at Rs110 market cap was Rs200crs. That time also cash was Rs170crs odd and no raider came through.”—>** I think conditions were different two years back, people wanted to save money, not invest. This time they can though yes, it remains a far fetched possibility**

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I will be watching this company carefully. The current CEO Anjan Lahiri was in MindTree before as one of the 10 founders, sales head for Europe and then CEO for IT services BU. He is one of the best sales manager I have seen. He knows how to sell. He became CEO of ITS when Ashok Soota had left in huff and there was question mark about the company. Tamil coterie was in full command now. Against this backdrop he achieved 30%+ YoY sales for few years and saved the company. Product engineering business was dragging the company. Some time ago the same Tamil coterie in this company made his life difficult. He left in huff. Heard they had to send IT guys to his flat at mid night to recover laptop. It was that bad.

Let us see if he can rescue Sasken like he rescued MindTree. He is champion.

1 Like
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Hi Girish,

Many thanks to ur inputs. You have mentioned: “He is one of the best sales manager I have seen”, have you worked with him directly. I too am from IT sector, have worked in pre-sales and sales so would like to know more about him.

Thanks in advance

Ashish

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_ “He seen”, _

Yes Ashish. I was in MindTree. And I had opportunity to see him in real close. His background in sales. But he turned out to be great strategic thinker when he became CEO. My BU head had brought him to tell us about strategic planning. He stood on conf table and said most important word in strategy is “NO”. You are successful only if your NOs are far more than YES. I think I will remember that presentation and delivery till end. He ensured his words and deeds matched. Made many entrenched people unhappy but steadfastly closed BUs not making money. The defining moment was when Ashok soota has asked R&D services to prepare plan for renewable energy entry. The strategy head asked him to fund Rs 5000 for analyst report in meeting. Anjan said it is not in my priority list (SAP was that time) and won’t waste that money and he walked out. Meeting as over in less than 5 mins. Quick, Straight, bold and simple communication. One of the best communicator and presenter I have seen.

But the task in Sasken is not easy. Product engineering space is no more lucrative since captives, filled with dark Indians with fake American accent, opened in India.

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It was great to know about you Girish and ur views about Anjan. I was thinking yesterday that some companioes, whcih were kind of stagnant, when external management came, they started doing well. U can have a look at IndusInd, Kale, MPS etc. In fact Warren Buffett has recommended a book “The Outsiders” on the topic, if u haven’t read it, awesome book.

I think if product engineering space is not lucrative enough, diversification is always an option, depends on what Anjan thinks.

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Anyone coming to attend AGM? Its very near to my office so thinking of going for it, I think i do not have many questions, main motive is meeting some Valuepickrs if anyone is coming.

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You could ask them the following:

1). Once you get the complete money from the recent settlement you will have Rs282crs of cash. Do you plan any dividends or buy backs.

2). By when do you expect consolidated sales to star growing again?

I can’t think of anything else.

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Hi Venkatesh,

"1). Once you get the complete money from the recent settlement you will have Rs282crs of cash. Do you plan any dividends or buy backs."–> This question would anyway be asked, i m not sure i would get the first opprtunity but if i get definitely i will ask the same:)

“2). By when do you expect consolidated sales to star growing again?”–> I had talked with a sales guy of Sasken close to a year back, he had told that u will see changes in some time, sales team is getting revived, new CEO has come and he has started implementing his ideas blah blah. I m yet to see any change. Basically my view is that this company’s management is very pro-shareholders, buy back and amount of dividends they have declared in the last 2-3 years, if we take that amount as a %age of cash they have generated, i think they stand among the best cash throwing listed company but yes, they haven’t been able to increase sales. I think if they are able to increase sales/net profits by just 25% CAGR in the ext 2 years, stock price will pierce its all time high

Thanks

Ashish

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1). Any update from Sasken AGM?

2). Any sense on what their strategy for growth is?

3). The settlement also mentions that there will be recurring royalty payments. Do we have any idea what will be the quantum of it and how it will impact profitability?

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AGM will be held on 22nd September

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Ashish any update from the AGM today. Did you get a chance to attend the same. No release on BSE so far in terms of AGM takeaways

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Hi Venkatesh,

Yes i did go but i was late as an unscheduled meeting came up, so it was over before i reached. I was about to return but then thought of catching people who reached before me. I did talk to many people but surprisingly no one, yes not even one person asked about what they r gonna do with cash. But i did get chance to meet n talk company secretary Mr Prasad. I probed him for about 5-10 minutes and here is what i asked and what he replied:

Q1. Will u be paying tax on the cash u received from arbitration?

Ans. Yes, we will pay about 60 crores of cash, rest we will keep with us.

Q2. What r u going to do with cash?

Ans. Right now sir we have just kept it in bank account, we are thinking of various alternate ways to utlize it, we haven’t decided yet, discussions r going on.

Q3. May we expect high dividends or buy-back etc in near future.

Ans. Sir as i said discussions are going on, we haven’t decided yet. We can invest cash in our existing business to expand it, do buy back, dividends etc or acquisitions, talks are going on, at various levels we r discussing, i cant disclose more than this.

Q4. How is the business going on? R u facing any pressure from clients? be it pricing, volume, account receivables etc?

Ans. Business is good sir, no pressure from clients, we r facing absolutely no pressure regarding our receivables, clients too r doing good.

Q5. I have heard/read that u r sprucing up ur sales team in US/EU and some changes have been brought in the sales strategy, can u please elaborate? I came to know that u r changing business model, u r targeting services rather than the product?

Ans. Sir many things are going on behind the scenes, i can’t give u specific details but be assured that many things are going on.

He had to go so i couldn’t as two more questions:

1). How many accounts u added in this qtr?

2). The building u r based and conducting AGM, is it urs?–> If it was yes, i guess the building alone would be 150-200 crores…

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Anyone has any idea regarding the above two questions which i couldn’t ask because of time constraints with Mr Prasad?

On a bit funny side, there was a gentleman with me who too was interested in some info. When Mr Prasad was about to leave me, this guy jumped in and asked “Should i buy more sasken shares or sell them off?” :slight_smile:

Mr Prasad gently said “I can’t tell you, please don’t ask.”

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Thanks for the update Ashish. In fy14 I think 1q pat was exceptionally high. Otherwise last couple if quarters company is averaging rs4 of eps. So if you annualised stock is at 20x pe assuming rs16 eps. That is quite pricey

I take comfort from the fact that company has market cap of 670crs and cash of Rs280crs. Honestly I was expecting big dividends or buy back in AGM. I am a quite disappointed. I also worry why Ashish Dhawan sold a big chunk.

Maybe we need to be a little patient and let them decide what to do with the cash.

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yeah correct. I think, its a personal opinion, that they should go for more dividends. If they go for buy-back, stock price will shoot up and they wont be able to buy the shares, also at this price and if it shoots up by 15-20% because of buy-back announcements, its not a buy from anyone’s point of view unless some big bang is in offing on sales/revenues/net profit front.

In dividends though they need to pay 17% tax but their purpose of sharing the cash with shareholders would be served. I think no one asked and so they dint say anything regarding utilization of cash. I think u r correct, we need to wait for 2-3 quarters and watch what they r gonna do with cash. I think utilization of 280 crores should be done after very high due diligence which it seems they r doing so we need to wait.