Nucleus software exports limited

Positives:

• Nucleus releases a new module/update every year increasing value of product
• Being in fixed price contracts, the price escalations take time while wage inflation impacts EBITDA margins
• The contracts are usually 3-7 years long, with repricing followed at the end of the life
• Considering 2022 as the year of reprising and low EBITDA margins due to “The Great Resignation”, the same repricing can be considered to occur from 2025 to 2029
• The price charts reflect this growth over past 15 years with a flat to downward trend followed by a lumpy growth period
• ~Rs 500 crores of cash is 16.67% of the MV with no debt, allows for a downside safety in current market conditions
• The company has de-risked its business in terms of customer concentration, dependence on export sales, etc

Negatives:

• The CFO is low considering this being a tech company as the receivables is high, and the CFO could have been increased by using working capital
• The working capital to increase CFO will increase valuations and improve cost of capital, but the company is debt averse and holds cash
• The foreign subsidiaries do not make CFO as can be seen in their reported financials
• The company is dependent on BFSI doing well along with IT, both being neglected by the market
• Promoter selling stake in recent buyback, which is understandable by the fact that the promoter stake is very close to 75%. Arun Jain in non-promoter can be considered a promoter since he is with the company since 1990s. Therefore total stake is 74.3% which should come down after buyback

All-in-all, if the company is available at a good PE can purchase and hold for 4-5 years (2029) to see returns