Recommendations from Computers - Software Medium & Small

Recommendations from Computers - Software Medium & Small

This section gives a recommendation of a stock having stock price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon.  

STABILITY IS THE KEY

R SYSTEMS INTERNATIONAL LTD

HERE IS WHY
Good growth prospects
Strong financial performance
Diversified customer portfolio.

R Systems is a leading provider of technology, artificial intelligence, analytics and knowledge services. It partners with customers to enable or elevate their digital transformation with diversified digital offerings, including product engineering, cloud enablement, QA testing and digital platforms and solutions. R Systems’ services and solutions span over five major business verticals such as telecom, technology, healthcare and life sciences, finance and insurance, and retail and e-commerce. R Systems maintains 16 development and service centres to serve customers in USA, Europe and the Far East.

The company has over 170 customers in about 40 countries across diversified verticals. Around 90% of its revenue was derived from information technology (IT) services. Also, no customer accounts for more than 7% of the overall revenue. Well-diversified industry and customer portfolios are expected to assure steady business growth. CRISIL believes R Systems will continue to maintain a healthy financial risk profile over the medium term, supported by negligible debt levels, high liquid surplus, and conservative financial policies.

The company gets less than 15 per cent revenue from Coronavirus-prone areas like Thailand, Singapore and Malaysia. However, most of the contracts of the company are long-term. This gives it revenue stability over a greater time span. Hence, the recent Coronavirus epidemic would have limited impact on the company’s business. The management is confident of a good year ahead with encouraging sales’ pipeline. The company has also started a new SEZ unit in Greater Noida to cater to growth. The company follows calendar year as its financial year with financial year ending in December.

On a consolidated basis, the gross sales have increased 10.61 per cent to Rs. 212.87 crore in the quarter ended December 2019 from Rs. 192.45 crore in the corresponding quarter in 2018. The EBITDA, excluding other income, showed an increase of 20.50 per cent to Rs. 21.79 crore in the December quarter of 2019 from Rs. 18.08 crore in the same quarter in 2018. PAT for December quarter stood at Rs. 23.23 crore as against Rs. 26 crore in the same quarter last year, showing a decrease of 10 per cent. The decrease in PAT can be attributed mostly to reduction in other income. The EBITDA, excluding other income, margin improved due to revenue growth and discipline in execution along with rupee depreciation.

On a year-on-year basis, the company has shown excellent growth in sales and profits. Its sales have increased from Rs. 592 crore in FY17 to Rs. 809 crore in FY19 showing a CAGR of 16.86 per cent. The profit has shown a CAGR of 60 per cent in the same period, increasing from Rs. 22.53 crore in FY17 to Rs. 58.13 crore in FY19. The company has shown good improvement in its financial results. It has revenue stability due to long-term contracts. The revenue is also less risky due to a diversified customer base. By virtue of these factors, we recommend our reader-investors to BUY this stock.



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