RS Software Research Report By Hem Securities

Robust fundamentals

RS Software Ltd. has registered with excellent financials for the year ended March 2014. Revenues from operations surged by about ~20% at Rs.381.88 crores from Rs.318.16 crores in FY13. Strong sales has been driven robust revenue numbers from all around the world markets. Revenues from USA stood at Rs.325.87 crores from Rs.276.31 crores last year; witnessing a sharp growth of 17.94%. Rest of The World revenues grew sharply by 33.80% at Rs.56.01 crores form Rs.41.86 crores last year. Operating profit zoomed by about 54% at Rs. 76.49 crores from Rs.49.58 crores a year ago. Net profit skyrocketed at about Rs.51.18 crores as compared to Rs.35.44 crores; witnessing a growth of ~44%. Adjusted EPS stood at Rs.39.97 as against Rs.29.26. Operating profit margins expanded sharply by 445bps at 20.03% from 15.58% in FY13. Net profit margin jumped by 226bps at 13.4% vs 11.14% last year. Order book stood at USD 60 million for 2014-2015. The company has done some excellent strategic work with one of its major stakeholders in acquiring processor in Europe last year which has fuelled to a larger growth and is expected to continue for the next several quarters to come. The company enjoys zero-debt status. Further, revenues have been growth at a five-year CAGR of 21% translating into five-year EBIDTA CAGR of 36%. There has been a sharp five-year CAGR growth in PAT at 59% depicting the strong financial performance by the company since that time.

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Valuations:

With robust business model, strong fundamentals, debt-free status, wide market presence, esteemed clientele and growing electronic payment industry; RS Software Ltd. growth prospects and profitability looks optimistic. We believe the company is trading at an attractive valuation at 8.38x and 6.97x of FY15EPS of Rs.51.33 and FY16EPS of Rs.61.67. We initiate a ‘BUY’ on the stock with a target price of Rs.600 (appreciation of about 40%) with the medium to long term investment horizon.

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