R S Software

Much more will come if we stay invested for long.
Always take the advantage of PANIC and OVER ENTHUSIASM.

 

OK Sir.

 

RS SOFTWARE announced results and final dividend of RS 1.25 per share.

Such result was already expected.

lets see how they do in current FY.

 

Why results are so bad. Stock is in heavy loss. What to do now with the stock? I am willing to hold but I want some confidence that the business model with visa is still okay.

 

Confidence is something that you can never borrow.

Whatever Raj Jain forecasted, turned out to be true.

He had said Toplines will remain flat and 25% annual OPM will be seen.

He also said that growth will be back in 2015-16.

Lets see if he does M&A now.

 

I think investors are very worried about fate of VISA. Is the deal there or not there? Raj Jain should come on TV and say DONT WORRY. Visa is still our client and we are doing work for them. Then investors will relax with no tension about holding the stock.

 

Dear Mr xxxx

I just returned from my overseas travel. I am pleased to confirm that the contract between RS Software and Visa continues to be valid and our company is executing the business for Visa with total commitment as always.

Best wishes

Raj Jain
31 Jan 2015

 

Ok. Thanks. This is a big relief then if Raj Jain has written such assurance to investors. Visa is the only problem and if that business is secure than we can relax.

 

Raj Jain had sent that email to me.

That is the reason I am not worried.

Panic causes all type of losses (mental, financial etc)

Dont watch market everyday.

 

I am Eagerly waiting to see his interview.

 

Investing is also about not loosing money so any black swan event which may have dire consequences should be investigated before betting your money on it.

 

What you are suggesting Sir. That VISA risk is too much? You know anything in matter? Pls share.

 

My point is the we should also take into consideration worst case scenario for RS Software.What if Visa switches to some other software provider and how RS software will get impacted by that.
What is the probability of that happening.
Does RS software have any competitive advantage which will make it difficult for VISA to switch to some other provider.

 

I will go through its annual report and post any meaning ful info here which might be of interest to you.

 

If you check carefully, everything is good except the top line revenue growth.

Now lets study the consolidated "Revenue from USA" (main source).

It has actually increased by about 11% ( Rs 325 cr to Rs 361 cr ) on annual basis but revenue from "Rest of World" (ROW) has diminished from 56 cr to 14 cr because Mr. Raj Jain has terminated the contract with them as the profit margin was not sufficient. Good

Needless to say that bottom lines are extraordinarily good. So grossly their business is doing pretty well. Good

Cash position
Rs 41cr as on March 2014
Rs 81cr as on March 2015 Excellent preparation for M&A

Reserves and Surplus
Rs 163 cr as on March 2014
Rs 211 cr as on March 2015 Excellent Job

consolidated EPS Growth
21.5 as on March 2014
26.2 as on March 2015 22% growth is remarkable

Dividend
Final dividend of 25% in Q4

The Company has already paid Interim Dividends @ 10%, 15% and 15% in the last three quarters of this fiscal.
Great..It shows that financial books are not cooked up or fake

This stock is certainly not a sell candidate if you are a long term shareholder as Merger and acquisition deal may get announced anytime in this FY. There is rumor that VISA has terminated its contract which is not true (already clarified by Raj Jain though Email). Share may take a dip in short term due to revenue hit

 

Exp. EQAXScore is 83 out of 100. and Current EQAXScore is 81 means in future company will do their best. SA Net Profit (in Rs Cr) can be increases from 51.18 to 65.93 cr, SA Net Sales (in Rs Cr) from 351.88 cr to 367.89 cr.SHP Rating is 100, Turnover Rating is 91. All is good in this company.
"Expected EQAXScore" based on quarterly results declared in current financial year. In later parts of year, this figure should be given more priority than corresponding current figure.
"SHP Rating" measures how healthy is shareholding pattern of the company. Too high pledging, very less promoter shareholding, reduction in promoter shareholding reduce the SHP rating.
"Turnover Rating" measures the Volumes and Turnover of the stock on NSE and BSE.

 

Vijaya ji, problem with Eqaxscore is that it is based on past financial data. What if problem happens with VISA? Eqaxscore will not help you at that stage.

 

This is very good analysis of the results. I am very impressed Let us hope for the best

 

Although their are lots of principles to win the game of stock market but let me highlight just 2 of them which are important to be followed at the moment if you are invested in RS Software:-

1) Market has a past track history of giving surprises and throwing out traders from the money-game - You really don't know whether RS Software will actually correct more from the current levels or not. Even if it corrects, you never know when it will take a massive U-turn and at what intensity.

2) 98% traders always lose money and all those 98% can't control their emotions- You will have to master your emotions even if the stock falls to Rs 150.

Market has always done the unexpected things and it will continue to do so. It does not care whether you are in the game or not.

Conclusion: Don't worry about the revenue growth. Close your eyes and ears for few days or weeks and stay invested. I am more than convinced with RS management. Raj Jain is a transparent guy. Did you know that paying dividends is actually not an easy deal for any company? Companies pay DDT (Dividend distribution tax) for distributing dividends. This is actually an evidence that company is investor friendly and not selfish cash burner.

(This is the philosophy of legendary fundamental investors. Technical analysts will surely not agree with the above rules)

 

My observations:

1)Customer concentration is identified as a risk by the management which they are trying to address by focusing on sales and marketing.Visa is also trying to rationalize its vendor base which means it may have some adverse impact on some of their vendors.

2)They are a niche player, they have early mover advantage having experience of 20+ years, so they have deep domain knowledge and also they are working with VISA for last 20 years, so that gives a competitive advantage to them.Payment industry has entry barriers as security is very important, so established players have an edge.

3) they may look for acquisition to diversify to grow inorganically.

Personally i will keep this stock in my watchlist and will track how things go from here, whether their sales initiative produces any positive result.