Buy RS Software; target of Rs 250: Sunidhi Securities

Sunidhi Securities is bullish on RS Software (India)  and has recommended buy rating on the stock with a target of Rs 250 in its October 11, 2012 research report.

"RS Software (India) (RSSIL) was incorporated as a private limited company on December 2, 1987 and was converted into a public limited company on February 5 1992. Over the years, RSSIL has grown with global leaders in the electronic payments industry backed by strong application management fundamentals that continue to power its core execution engine. RS Software's offices are located in the US, UK, Singapore and India, employing over 900 professionals. Some of the clients RSSIL serve are Visa, Visa EU, Visa CEMEA, Maclane, Pemco, Vignon."

"During Q2FY13, net profit has shot up by a whopping 64% to Rs9.5 crore on 30% higher revenue of Rs83.8 crore. OPM and NPM stood at 16.3% and 11.3% respectively. Q1FY13 EPS stands at Rs8.3. During H1FY13, net profit rose 72% to Rs18.4 crore on 36% higher sales of Rs164 crore. OPM and NPM stood at 16.3% and 11.2% respectively. H1FY13 EPS stood at Rs16.0. With a debt of Rs3.3 crore, the DER worked out to just 0.04:1. The value of the gross block is Rs83 crore. The cash as on 31 March 2012 stood at Rs21.6 crore or Rs18.8/share. RSSIL made significant investments of its business surplus for security and returns. An investment of Rs33.2 crore ─ Rs9.0 crore as noncurrent investments in mutual funds and Rs24.2 crore as current investments in mutual funds maturing within 12 months. RSSIL generated a return of 9% from these investments during 2011-12. Thus cash & cash equivalent stood at Rs54.8 crore (Rs47.7/share)."

"Capitalizing on its core strength, RSSIL has defined its business strategy to work with the major stakeholders in the payments industry globally, and bring the best value to its customers. To fulfill its vision of becoming a global leader in providing technology solutions to the Electronic Payments Industry, the company will work with major Payment Networks. The cornerstone of RSSIL'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. RSSIL is one of global leaders in providing technology solutions to the electronic payments industry from India and this explains why it has outperformed the Indian software export industry growth by a factor of 1.5x in fiscal 2011-12 and reinforced its growth journey."

"RSSIL 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. The credible performance has only reinforced the company's commitment to ensure that this time around, the company is fully prepared to capitalize on the next wave of growth for the Indian companies, with Indian IT industry expected to grow 3 times in the next 10 years. This coincides with the inflexion point for growth in the payments industry. At the CMP of Rs175, the share is trading at a P/E of 5.5x on FY13E and 4.3x on FY143E. We recommend BUY with a revised upward target price of Rs250 (at a P/E of about 6.0 on FY14E) in the medium-to-long term," says Sunidhi Securities research report.