When Daljeet Kohli, in his usual soft-spoken and understated style, recommended a buy of SQS India BFSI Ltd (then known as Thinksoft Global Services), I didn’t pay any attention. Who wants to mess around with a small-cap Tech stock, I thought.
That was a terrible tactical error. If I had looked at the list of shareholders, I would have taken a different view. Kalpraj Dharamshi, the veteran stock wizard, holds a massive stake in the Company. As of 31.03.2015, Kalpraj, Hemang and Ravindra Dharamshi held 1,50,000, 1,50,000 and 1,00,000 shares respectively, aggregating 400,000 shares (3.89%). As of 30.09.2015, Kalpraj has increased his holding to 200,000 shares while Hemang continues at 1,50,000 shares. Ravindra’s holding is not known. It probably continues at 100,000 shares.
Daljeet’s logic for recommending a buy of Thinksoft was extremely simple. He pointed out that Thinksoft’s integration with SQS Quality Systems AG, the German behemoth, was a “potential game changer” because it would provide “numerous growth opportunities” etc to Thinksoft. Daljeet also explained that the stock would get re-rated on the back of catalysts like cross-selling, higher deal-size, etc.
Well, Thinksoft was then at Rs. 370. Today, in its avatar as SQS India BFSI, it is standing tall at Rs. 921. This means that fabulous gains of nearly 150% are on the table.
Kalraj Dharamshi and his family members have pocketed gains of nearly Rs. 25 crore on their holding of 400,000 shares.
The theory that SQS India BFSI would benefit from the benevolence of its MNC parent is also brought out by the Q2FY15 results.
|SQS India BFSI Ltd – Q2FY16 Financial Results|
|Particulars (Rs cr)||Sep 2015||Sep 2014||% Chg|
In his latest report, Daljeet argues that the blockbuster results of SQS India are “early signs” of integration with the parent and that the “actual benefit and J-Curve growth” will be visible in FY17E.
Daljeet recommends a buy in the following words:
“At CMP of Rs.796, the stock is trading at P/E multiple of 19.2x FY16E and 9.1x FY17E earning estimate. The current quarter performance gives the indication of integration benefit through following: (1) Strong revenue growth, (2) Improving utilization level, (3) Consistent improvement on margin front, and (4) Growth in key vertical and geography. The higher revenue growth during 1HFY16 remains the positive surprise. The sustenance of similar performance for medium‐term could lead to significant re‐rating. We upgrade our rating from BUY to HOLD with increase in TP to Rs.1,053 (valuing 12.0x FY17E) from Rs.665 on SQS India BFSI.”
It is notable that even after Daljeet’s update report, the stock has shot up 15%. The target price of Rs. 1,053 is within touching distance. Whether Daljeet will now recommend a hold or raise the target price requires to be watched closely!