Wednesday, March 25, 2009

R Systems Strong Buy good dividend yield

R Systems- Strong Buy.

Targets

  • Long term Target 100 or 2x upside in one year
  • Shorter term target – at least 20-25% in next one month. Trigger ex dividend date of Rs. 2.4 per share
Date 25th Mar`09
Cmp 49

Market cap at above cmp 66 crores

Reasons to buy

  1. Results and dividend at all time high but stock at all time low
  2. Dividend per share of 2.4 vs 1.8 or 33% higher. Dividend payout 12% vs 10%
  3. Ex dividend date of 16 April 2009. Dividend yield at cmp of 49 = 4.9%. by ex date assuming yield compression to even 4%, share price should be 60 or 22% upside
  4. Steady results – last 3 quarters from Dec`08 to Jun`08 PAT of 9,6 and 4 crores
  5. Last 3 years dividend & PAT CAGR growth at 26% & 39%
  6. Zero debt. As on Mar`08 Cash of 44 crores. CY `08 PAT of 27 crores
  7. Trading at Close to zero EV Enterprise Value
  8. Valuation ratios - quite low as EPS growth was just 12% in CY`09 but at cmp market has grossly underpriced the fundamentals.PER ,PSR PBR all are all time lows of 2.4, 0.2 and 0.4 ( PE ratio, Price to sales, Price to book).
  9. Buyback ( max amount of 8 crores) going on at max 150 per share. Impact would be reduction of equity and corresponding increase in EPS, ROE by 4% to 10%
  10. Technicals – show good entry level at cmp 49 , it is +25% up from 1 year low of 40 & 65% low from 1 year high.
  11. Long term investors of the likes of GE holding over 5%
  12. Weak rupee to help as most of revenues is from exports

Risks /Unknown/ Negatives

  1. Any forex deals. or FCCBs or pledging of shares. From my homework did not find any.
  2. Average Debtors as on Mar`08 is 90 days which is bit on the higher side.

About R Systems

  • Into product software outsourcing
  • Had raised 70 crores in IPO in Oct`07. Till date claims to have spend 60 crores.
  • US 70% of Revenue, 15% South asia
  • Software development 85% : BPO 15%
  • GE group among top 5 clients contributing 13% Offshore 80% : onshore 20%

R Systems Buyback details

  • Maximum amount for buyback - Rs. 8 crores
  • Maximum buyback price – Rs 150 per share. Maximum and Minimum of shares to be bought 5.3 lacs to 13 lacs
  • Percentage equity to be reduced post buyback at max and min. shares bought by buyback 4% to 10% Buyback Start date Sep`08 , to be valid till Sep`09

Key Shareholders as on Dec`08

1 Reliance Capital Trustee -

A/C Reliance Equity Opportunities Fund 700,000 5.20%

2 GE Capital Mauritius Equity Investment 596,695 4.44%

3 Anmol Finpro Pvt 604,046 4.49 %

4 O Neil Nalavadi 240,000 1.78 %

5 GE Strategic Investment India 178,000 1.32 %

6 Bhavook Tripathi 437,973 3.26 %

7 Manmohan Singh Passi 580,400 4.32 %

Total 3,337,114 24 24.81%

A good mix of inorganic growth-Past 4 Acquisitions (but need information from management regarding synergies realised and any pending payments left)

  • Acquisition of Sento Europe, Europe ,January 23, 2008,technical support and customer care services
  • Acquisition of WebConverse, Inc. ("WebConverse"), 24th August 2006. technical support company
  • Acquisition of ECnet Limited ("ECnet"), Singapore,January 8, 2004 , provides an integrated suite of Internet-based supply chain solutions and information technology consultancy services
  • Acquisition and amalgamation of Indus Software Pvt. Limited ("Indus") with our Company, February 2002 provider of lending solutions to consumer finance industry. In the transaction GE received 2,983,475 shares in R Systems in return for its shares in Indus.

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