This is a Delhi-based company catering to the BFSI space. When you talk of a software company catering to a banking sector, the first thought which comes to your mind is the collapsing financial sector in the US, but this company derives less than 1% of its revenues from the US. This stock is again trading at Rs 50 from a high of about Rs 500, which it touched about a year-and-a-half back. It is down by about 90%. There has been deterioration in the financials of the company and it is witnessing margin pressure. The revenues for first half of this financial year are up by about 15% but profit after tax is down by about 55-60%. So, there has been margin pressure being witnessed by the company.
This company derives most of its revenues from Far East and south-east Asian markets which are impacted by the global slowdown, but not as much impacted as the impact witnessed in the US. In spite of global slowdown, Nucleus Software is still receiving very good order flow which is evident from various announcements which they have made to the National Stock Exchange and Bombay Stock Exchange in the past two months.
Order book for quarter ended September 2008 was close to Rs 356 crore. Given the current order flow it would have gone up for this quarter also. At the current market price, the market cap of this company is Rs 165-170 crore and it is totally debt free. The company has got cash and cash equivalents of close to Rs 90-95 crore. As far as the valuation of the business of the company is concerned, it is going at a valuation of Rs 70-75 crore.
It is a product company and not a service-oriented company. I think Rs 70 crore for this kind of company looks to be very low. Given the quality of the management of the company and strong balance sheet, I think they will be able to weather the storm which is currently being witnessed in the global markets. Hopefully, in the next couple of years they should emerge stronger.
At the price of Rs 50, there may not be any immediate triggers in the stock, but this maybe a stock to accumulate at the current levels and on declines. It maybe a stock for the long-term investor because the management is trustworthy. It is a long-term pick to be accumulated over the next 5-6 months at current levels and may be in case the market drops and the price goes down at lower levels also.
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