Is R Systems International Bhavook Tripathi’s Multibagger Stock?

Bhavook Tripathi came from nowhere and pumped in Rs. 69 crores in purchase of 32% of R Systems International. So, what is R Systems International? A potential multibagger stock? We like to keep our eye on all multibagger stocks, so lets put R Systems through the grinder

About R Systems International:

R Systems International was founded in 1993 by Satinder Singh Rekhi. Rekhi claims to have over 25 years of experience and to be one of the leading figures in the Information Technology industry. Prior to joining R Systems, Rekhi held senior management positions with HCL Technologies and DISC (now, Synergex) in the United States, Singapore and India. Rekhi has a Bachelor of Technology degree from IIT, Kharagpur and a MBA from California State University.

R Systems claims to be an integrated Product Lifecycle Management (iPLM) company offering outsourcing services to Fortune 1000, Government and Mid-sized organizations. It offers customized services in four major verticals including; BFSI, Media & Telecom, Healthcare and Manufacturing & Logistics.

R Systems’ Financials:

R Systems’ financial results are unlikely to set the bourses on fire. In Q1FY13, the operating income was Rs. 119.42 crores, up 22.67% on a YOY basis. However, the net profit was Rs. 5.41 crores, up 7.13% on a YOY basis. The Q2FY 13 results are expected on 27th October.

The EPS has been wildly fluctuating. From Rs. 14 in FY 2007, it soared to Rs. 20 in FY 2008, only to plummet to Rs. 6 in FY 2010. In FY 2010, it soared to Rs. 13.46 and dipped to Rs. 13.26 in FY 2011.

The Return on Average capital employed is also mediocre at 11% in FY 2011.

The only good thing is that the company does not have any debt. However, none of the other factors are exciting enough to warrant an investment.

The valuations are also not comforting. At the current price of Rs. 173 and an expected EPS of Rs. 17 for FY 2013, the stock quotes at a PE of about 10, which is pretty high given the small cap status of the company and the mediocre past.

Risks:

The stock has been on a scorching trajectory in the past 12 months giving investors a 72% return, thanks to Bhavook Tripathi’s purchases. However, this will obviously not continue. Too often we have seen small cap companies with no track record come up from nowhere with dazzling results, promising to take over the World and become multibaggers. There is enormous hype created, innocent investors are lured to invest at high valuations and the companies then disappear from trace, leaving the naive investor holding onto worthless paper.