Last week a member was promised a detailed note about the so called 'Opportunity cost'.OC simply put would be the cost of an alternative that must be forgone in order to pursue a certain action.Put another way, the benefits you could have received by taking an alternative action.OC relates much to the value investing aspect where you opt for deep value counters in place of growth counters thereby availing yourself a long waiting period.A growth stock may well double or triple but chances of the same happening to a value stock remains low.There's a long waiting period,it will likely bore you to death,you may well tear your hairs noticing every cats and dogs turning out to be multibaggers with your owned value bets moving nowhere.But if you could endure a long long waiting period,there's special moolah waiting at the end.If you have got the counter right,it may even single handedly make you rich provided the allocation is on the higher side.Yah am talking about those most craved about 30-40 baggers.So the decision for you members would be which boat are you in?In the growth counters with rich valuations with growth rate or in those value picks with tremendously attractive valuations but attached to the OC factor with a long gestation period backing it up?I used to opt for lot of microcaps in my earlier days which though performed well over a long period of time but certainly they ensured my patience matched the level of the Scotland King-Robert Bruce.They took many many years to perform.Several counters moved massive but those value counters remained in the vicinity of my purchase price.I really got habituated in getting okay with a no return for years period.But as the personal experiences grew and acquaintances became many,the strategy changed to be a more of a mix of both.Jim rogers adage of buying cheap,if not very cheap, with a positive trigger helped me bigtime.The returns started flowing much faster than what I could anticipate.The CAGR saw a betterment with the near banishment of OC factor from the portfolio.
Nowadays even if I come close to a good quality microcap,the screaming excitement of finding a ciger butt no longer prevails.A plethora of questions sets in automatically.Why in earth is it so cheap?Is it kinda we are unaware off certain negative factors in the counter?Its a microcap so mutual funds and FII's cant get in.HNI'S too would be interested at a higher level.It ought to have a low liquidity and the OC factor.Portfolio allocation too would be abysmally low as even 2-3% allocation may get me a 3-4% stake.Thus overall returns even if its a 10 bagger ultimately would be nothing.Also cant even recommend to you guys,you members would chase it and ensure it forcefully remains in the upper circuit for weeks.Ones you folks have pocketed with your's heart content, it will start to drift low due to lack of follow up takers.
A reality check to the recommended counters of mine would speak everything.Tata Elxsi moved to nowhere in the last 5 years till month of October 2013.It suddenly jumped 10% due to a great quarterly result,then when they stated they plan to make it a TCS on its own sector and the result most likely to remain upbeat,the whole game changed.Tata elxsi subsequently was recommended as the special Diwali call with the counter tripling in a matter of 4 months.So think about it folks,what would you have preferred?A tripler in a matter of 5 year and 4 months or just in 4 months?Take the case of recent call on Canfin homes.The company was doing amazingly well,thanks to the efforts of the MD-Mr C llango.It remained in the 170 range for nearly 18 months before moving to 220,all in a matter of a week with good deliver volumes.It was probably the cheapest bet in the sector,thus with even a 30% rally the multiple hardly went by 1.The call was given then even when a lot of members argued about a 30% rally in a week's time.But the factor remained it only moved 30% in a matter of 18 months.Canfin since then has moved to 360 in less than 3 months.There's a nomenclature of similar examples.From Atul auto to symphony to kajaria to hcl info to ratnamani metals etc.Thus its not a crime to buy something higher.A higher price or a higher PE often hints at a lot of clarity.Stronger hands,better perception and the breakout factor.There's also the incredible factor of buying something higher and getting that high conviction.Then those HNI's creeps in eradicating the last bit of negative vibes putting the stock higher.The MF's suddenly finds the particular stock which they long argued not to have owing to several factors, much convincing as it enters into the so called limit of their minimum marketcap requirement.The promoters and the management they too joins the bandwagon seeing the rise in the stock price,putting more efforts to perform,doing conference calls,analyst meets,Tv interviews.Lastly the FII's with billions in pocket,aiming to grow at high single digit ensures it remains in the overbought high multiple territory zone for ages.So if we consider all this thoughts and put together the actions in a 10 PE 100rs stock,growing at 30-35% CAGR and slated to grow at the same rate for coming 3 years,what would happen?The stock would move to 1000 bucks,resulting in a 10 bagger with a PE of just over 40 times.Can you guys name one such stock from my recommended stable?Well why one,take the case of Cera and Relaxo.Hope have been able to help you in learning a tad more about the aspects of markets.Happy investing folks.
Scripscan:RS software ltd
Quote:q)Who are the key influencers for the company?
Ans)The rapid growth in electronic payments volumes and new payment types forces payment providers to constantly revise their strategies, shorten their time to market, and create new products and services. RS Software provides solutions to help them meet these challenges.A close glance to the director report gave me everything about the company.Just ignore everything and concentrate on the quintessence.Think e-commerce-electronic payment-online payment gateway-mobile payment and their potential.Add up a visionary management,debt free growing company with lot of cash in books.Attractive valuations and Moat.You got the whole RS story folks.
Story:Story:Founded by the US based entrepreneur Raj Jain, RS began with a clear vision of providing quality software services to international markets. The company researched and instituted global best practices in the areas of People Management and Process Architecture to build a world-class organization. With rigorous attention to world standards, the company acquired ISO 9001:2000, SEI CMM Level 4, P CMM level 3 and ISO 27001:2005 certifications.RS Software is a Kolkata based IT company focussing on electronics payment domain. They have their own products which they sell as solutions.Playing a pivotal role for the Payment Industry, RS has developed and maintained mission critical applications for leading Payment networks in North America, Japan and UK. RS Software’s offices are located in the US, Canada, UK and India, employing over 1000 professionals to deliver high quality solutions for Payment networks, Processors, Acquires, Issuers, and other Payment Industry companies.Today RS Software is on course to be the leader in using its domain expertise to enhance the most powerful Payment Networks globally, and provide leading edge technology solutions to all stakeholders in the Payments industry.
Clientele:RS Software seems committed to its aggressive growth strategy.This company caters to the need of topline clientele which includes the likes of Visa, Visa EU, Visa CEMEA, Maclane, Pemco, Vignon etc.The cornerstone of RS Software’s value proposition is its understanding of the payment transaction’s entire life cycle, and a unique methodology customized for managing software applications for the electronic payment industry, in the areas of development, maintenance, migration and support. The experience of working in this industry over the past 20 years continuously enhances the knowledge pool that is managed by RS’ knowledge management system, with a goal to cross train in all areas of work. RS constantly refines the unique methodology to meet the dynamically changing requirements of its customers.RS Softwares is a niche player working on patent pending solutions in the mobile payments area.
Positive trends of the payments industry to continue:Few aspects which would speak about the positive trend of the industry.Nearly $11 trillion is spent globally each year (cash and cheques)providing a robust foundation for the growth of the electronic payments industry.The global electronic payments industry is experiencing an unprecedented growth on account of an irreversible shift from paper to electronic payment forms, processing tens of trillions of dollars of payment transactions.US payment transactions processing just on Visa & MasterCard networks have grown from 18% of non-auto retail sales in 1991 to 77% of non-auto retail sales in 2012 (estimated at $4 trillion).US consumer payments using cards are estimated to rise from 40% in 2006 to 60% by 2016.This industry has grown 10,000% since its inception in 1970. RS Software is well positioned to capitalise on this global opportunity and has a well laid out strategy backed by a comprehensive understanding of each client’s business.
Mobile telephony potential:While the global population is around seven billion, the total number of mobile phones is close to six billion, a global penetration of nearly 85%.Developed countries like the US, the UK and Germany have a penetration of over a 100% while Hong Kong and Saudi Arabia have a penetration approaching 200% even as the mobile phone penetration indeveloping countries like India and China is close to 70%, representing a scope for expansion.Mobile phones are extending financial services in lieu of an underdeveloped banking system with transactions involving SMS-based payments, direct mobile billing using PIN and onetime password (OTP) authentication and mobile web payments.The room for smartphones to grow is huge considering that there are only 1.5 billion smartphone users as against 6 billion mobile phone users in 2013.The global volume of money spent using mobile phones was around $106 billion in 2011, rising to $171 billion in 2012, and expected to grow to about $617 billion by 2016.
Words from Raj jain:The US economy has revived in the last few quarters. It is expected to continue to grow over the next few years and possibly be the best performing economy in the developed world.About 84% of our revenues comes from US. We should be strengthening this further. The US is the largest market for payments industry. We are starting to explore the India market, which has large potential but is currently limited as compared to US and Europe. We are today operating in four continents.However, our clients operate across the globe. We work with them globally. We have an excellent foundation to be a domain leader from India in the IT services industry, which is still largely focused on general outsourcing requirements.We continually evaluate good opportunities for acquisition globally . We have significant cash on our balance sheet and any acquisition if undertaken will make it possible to enhance our strategic capability and add value to our clients.The company’s global delivery model and knowledge transfer disciplines ensure that the company’s cross-culture experience enables maximum value to the customer from start to finish.
Sunidhi-Brokerage call on it:RS has seen demand recovery in the U.S. which bodes well for its business given its exposure to the market. RSSIL continues to put significant thrust on innovations and in building competencies through the Payments Lab and School of Payments.RS is building a robust global sales engine that complements the high priority accorded to the company's dominant customers and leveraging at the same time unusual growth potential.Longer term operational and strategic planning is being put in place.With its foundation for growth well laid out, RSSIL is poised to confidently approach the other leadership companies engaged in the one trillion dollar Electronic Payments space globally mitigating its risk of depending on a few clients. RSSIL is encouraged by its initial traction in the market place and the quality of the dialogue with new prospects/customers.RS remains committed to constant renewal of its abilities to deliver high performance.RS sustained focus on merchant acquiring aspect of the payment landscape, procedural improvements in CRM, focus on e-mail marketing to generate strong business response and undergoing initiatives to strengthen the team and process - all give strong revenue visibility going forward.
Few cool aspects:RS Software has appeared for the first time in Forbes ‘Asia’s 200 Best under a Billion’ in 2012. Steady growth in revenues, profit and earnings per share has placed theCompany in this elite group.RS Software has been listed as one of the ’30 fastest growing companies in India‘, by Outlook Business.Ranked at #17, RS Software has moved into the spotlight of high performing organisations across all sectors in India.
Numbers:Company has grown at CAGR of 24 percent in revenues for the last 5 years.PAT has seen a massive CAGR jump of 53 percent.Company delivered consolidated revenues of 381crs in fy13-14 vs 317crs in fy13-14.PAT jumped to 51crs vs 35crs in the same period.OPM and NPM stood at 22.0% and 14.0% Vs 17% and 11.9% respectively in FY13.The company is expected to grow 22-25% in the present fiscal.Reveneus should increase to around 470crs,PAT is expected to inch up to 64crs.EPS will stand at over 50rs for fy14-15.
Conclusion:RS software is an amazing play on the e-commerce boom.This fine business boasts of 30%+ ROE does not burden the oarsman.Debt too is nothing leaving balance sheet squeaky clean.The company has generated free cash flow year after year.The marketcap of the company is only 295 crs.As at 31 March 2014,the cash &cash equivalent including deposits and investment stood at 61.5 crore or 48 per share.Thus we are getting the company for just 230crs.The dividend declared for the year has been 6 rs per share.A debt free, dividend paying company which has been a consistent performer over the last several years operating in a sunrising industry, commanding a trailing PE of less than 6 is a massive bargain for the investors planning to own a pie of it.The company is expected to deliver an EPS of 50 for fy14-15.Keeping the same trailing PE of just 6 for fy-15,helps me to arrive at my target price for the counter.Its still an unnoticed gem which whenever gets attention would move on to a different orbit.One can safely buy it for solid returns in the coming months and years.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id email@example.com to know more about it.