_Business - _Offer G2C services (bill payment, electoral rolls, Aadhar, pds) , BFSI (banking services, direct benefit transfer, pension , insurance) and B2C services (telecom, education) in rural (reaching gram panchayat level) and semi urban areas by setting up banking correspondent (BC) outlets.Plan to increase its BC outlet count from 6,975 as of Sep 30, 2014 to 50,000 over three years, including 35,000 from a possible 160,000 rural areas and 15,000 from a possible 90,000 urban wards. More details about business adequately elaborated in the annual report.
Current price: 105
Market cap: 5300 cr
Div yield: 0.24%
Compounded CAGR 10Y*/5Y/3Y
-Sales: 57%*/46%/30%
-Profits: 61%*/27%/53%
*(Figure for 10 year is standalone)
Healthy return on equity & capital- FY 14 RoE/ RoCE: 28% / 32%
Healthy OPM and NPM margins
-FY 14 OPM/NPM: 27%/9%
-Trailing 12 months OPM/NPM: 26%/11%
Consistent tax payer: tax payout more than 25% in last few years
Key positives
)- Established track record of execution
)- They have exclusive contracts in few areas which restricts competition at least in BFSI and G2C space. Also have tie ups with banks which makes them the preferred partner .
)- Established infrastructure - As they partner with more players in the B2C space and the number of transactions also goes up in the BFSI space, volumes can go up with the same infrastructure - thereby causing margins to expand.
Concerns
)- Change in government stance on financial inclusion etc can affect their business’s future prospects- in my view this is unlikely
)- Dependency on franchisees/Sustainability of the BC model - If the franchisees fail to ramp up the transactions as anticipated, it will affect future revenue n margins.
)- Promoter holding: 38%(shareholding on the lower side though no pledges)
)- DIIs/FIIs: 10% (none of the big guys are there except LIC)
)- Debt has increased in last 5 years, FY 14 end Debt: 408 crs, Debt to equity ratio: 0.60. The good part is that of the total debt, Long term debt is only 86 crs. Balance is short term debt (adequately funded by current assets) arising from working capital intensive nature of the business (but overall seems ok as RoE is good).
Overall,If I just extrapolate 9 month numbers for FY 15 into full year, FY 15 Sales / PAT / EPS: 2,776 crs / 328crs / 6.50 which translates into 86% growth in EPS in FY 15. At RS 105, it is trading at 16x FY15 earnings which looks cheap considering earnings growth track record.
Has anyone else invested? How do the future prospects look like ?
Disc: invested.