vakrangee ltd fundamental report - ats -...
TRANSCRIPT
Vakrangee Ltd was incorporated in May 1990 under the provisions of the Companies Act, 1956. The Company
together with its subsidiaries provides diverse solutions, services in e-governance sector with special competencies
in handling massive, multi-state, and e-governance enrollment projects and software and IT solutions, data
digitization, data management system and print management system.
Potential Catalysts
Government's Push towards Financial Inclusion
Making India Digitally Empowered
Implementation of Aadhaar
India’s largest e-governance player now venturing into rural banking services
ATM Opportunity: India has one of the lowest ATM penetration
Deposit and Credit Statistics of Rural Population
Recommendation With Superior project management skills, focus on measuring and monitoring quality and its planned expansion
Vakrangee will be able to grow over the next few years. We recommend BUY on the stock at CMP of Rs. 164 to
target of Rs. 192 (Forward EPS of 8.89x FY16).
Financial Summary
Yearly Income Statement 2014 2015 2016 E 2017 E
Revenue 1958.05 2786.36 3244.50 3765.87
EBIDTA 540.75 729.10 868.98 1010.21
EBIT 359.88 564.24 693.58 830.91
Adjusted Profit After Tax 174.97 321.80 470.55 582.50
EPS (Unit Curr.) 3.31 6.08 8.89 11.01
EBIDTA Margin 27.70% 26.22% 26.89% 26.89%
EBIT Margin 18.44% 20.29% 21.46% 22.12%
PAT Margin 8.93% 11.55% 14.50% 15.47%
Dec 4th, 2015
VAKRANGEE Ltd Fundamental Report
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KEY PARAMETERS
BSE 511431
NSE VAKRANGEE
REUTERS VAKR.BO
INCEPTION 1990
IPO 1995
INDUSTRY SOFTWARE – CONVERTS
CMP (as on 4/12/2015) 164
Stock Beta 1.3138
52 Week H/L 86.40 / 174.00
Market Cap (Cr) 8821.05
Equity Capital (cr) 52.92
Face Value (Rs) 1.00
Average Volume 1.06 Million
Shareholding Pattern (%) Promoters 41.61
Non Institutions 48.39
Grand Total 100
Research Analyst:
Vinay Gowda
ATS Wealth Managers Pvt Ltd
Email: [email protected]
Phone: 080-43561171
BUSINESS DISCRIPTION
Vakrangee Limited is an India-based technology company. The Company's business segments include e-Governance
Projects and Vakrangee Kendra. The e-Governance Projects segment offers collection services, such as payment of
electricity, telephone and mobiles; recruitment application processing, which include processing of applications for
recruitment of workforce for government related services; issuance of certificates, including online registration and
issuance of birth, death and marriage certificates; grievance management services, which enable citizens to issue
formal grievance to the government directly or through local agencies, and enrolments, such as land record digitization,
electoral rolls, payment of utility bills, taxes, levies and others. The Vakrangee Kendra segment includes banking,
insurance, e-governance, e-commerce services and white label automated teller machine (ATM) business. Its
subsidiaries include Vakrangee Finserve Limited and Vakrangee e-Solutions INC.
Vakrangee Limited along with its subsidiaries, Vakrangee e-Solutions Inc. (Philippines), Vakrangee Finserve Ltd.
provides diverse solutions, activities in e-governance sector with special competencies in handling massive, multi-state,
and e-governance enrollment projects and software and IT solutions, Data Digitization, etc.
Brief History
The Company got its first order from the Election Commission of India for one state in 1993 and moved on to few states
for e.g. Maharashtra, Chattisgarh, Gujarat, MP, UP etc. and in 2005-06 partnered with the leading Indian IT Company
for the Ministry of Company Affairs (MCA) project across 15 states in 2005-06.
It has done imaging and digitization of data records for many states, government authorities, municipalities and
departments. The Company set up Asia's fastest and first hub for imaging & printing with a capacity of 2180
impressions per min in Mumbai. It did the land record digitization for UP and has moved up to issuing smart cards under
the Rashtriya Swasthya Bima Yogana (RSBY). In 2009-10, it bagged the digitization of Land Records for the Philippines
Government. Also, it was part of the consortium that won the Passport Sewa Project in India. The Company has moved
up the value chain from a service provider to large IT player, to a consortium member and further to leading bidder for
projects.
Services offered
The Company offers document management services (DMS), printing management services (PMS) and total systems
support services to public and private sector companies in the Government, BFSI, Telecom, Power, Retail and Civil
Aviation sectors. The document management services include scanning, digitization, work flow management and
document lifestyle management. Major portion of the revenues come from DMS segment. To complement DMS, the
company provides PMS to its clients, whereby, the Company provides high quality printing and mail stream solutions to
its clients.
The Company has added the total systems support solutions thereby acting as a system integrator for its clients. The
Company has also developed in-house solutions for the government sector. They include HR solutions (Human Capital
Management), information system for schools (E-Administrator), Matdata Suchi (electoral roll system)
Opportunities in Government sector
The Government of India has under the National e-Governance Plan earmarked 27 mission mode projects. For the
Central Government, the projects include – Income Tax, Passport Visa & Immigration Project, MCA 21, Insurance,
National Citizen Database, Central Excise and Pension. At the State Government level the projects are – Land
Records, Road Transport, Property Registration, Agriculture, Police, Treasuries, Municipalities, e-District, Commercial
Taxes, Gram Panchayat and Employment Exchange. At the integrated level the projects include – Common Service
Centres, e-Courts, e-Commerce, India Portal, e-Districts, e-Biz and e-Procurement. In the mission mode projects, the
Company has been involved in Passport Seva, MCA 21, Insurance and land records. The Company has bid for road
transport projects. The Company would be bidding for other projects like National Citizen Database etc.
The Budget 2012 – 2013 has earmarked Rs 1900 crore towards a pilot for the UID project. Along with the mission mode
projects, the Company sees opportunity in the National Rural Employment Guarantee Scheme (NREGA) scheme,
Accelerated Power Development and Reform Programme (APDRP) for power sector and Rashtriya Swasthya Bima
Yogana (RSBY).
Opportunities in Private Sector
Currently, higher portion of revenues accrue from the private sector. In the private sector, the Company is present in
the Banking, insurance and Telecom sector. In banking, the Company provides services in customer application form
processing, mortgage workflow solutions, cheque truncation, printing of customer statements and correspondence etc.
In telecom sector, the Company is working for the Top 3 of the sector and the record management services. It has
created a solution – Record Management Imaging Interface & Business Transaction (RMIIBT) which offers end-to-end
document governance solutions. In Insurance sector, the Company is working for the Top 2 private Insurance
Companies in record management services.
MANAGEMENT & GOVERNANCE
Shareholding pattern as on Sept 30th, 2015
The company’s management includes Mr.Dinesh Nandwana, Mr.Ramesh M Joshi, Mr.Sunil Agarwal, Mr.T Sitharthan,
Mrs.Sujata Chattopadhyay, Ms.Darshi Shah, Ms.Darshi Shah, Dr.Nishikant Hayatnagarkar, Mr.Ashok Kumar Gupta,
Mr.Avinash Vyas, Mr.B L Meena.
Company has S K Patodia & Associates as its auditors. As on 30-Sep-2015, the company has a total of 529,157,295
shares outstanding.
INDUSTRY OUTLOOK
India’s Gross Domestic Product (GDP) growth slowed to 7.0% in the first quarter of financial year (FY) 2015 (ending 31
March 2016) from 7.5% in the last quarter of FY2014. The deceleration was broad-based, with private consumption,
manufacturing, and services all experiencing slower growth. However, expansion in fixed investment picked up to 4.9%
from 4.1% in the previous quarter, indicating a continuing gradual recovery in capital expenditure. Agriculture grew by
1.9%, but monsoon rainfall that has been 12% below normal crimped the summer crop planted area.
Low global oil prices, a positive base effect, and tight monetary policy kept consumer price inflation benign at an
average of 4.8% in the first 4 months of FY2015. Core inflation has trended downward for nearly 2 years and now
hovers just above 4%.
The current account deficit in the first quarter of FY2015 improved to 1.2% of GDP from 1.6% a year earlier, helped by
moderate monthly trade deficits and lower net outflows from the primary income account.
The IT industry is being driven by digital business, and an environment driven by a connected world. Gartner predicts
spending on Internet of Things (IoT) hardware will exceed $2.5 million every minute in 2016. Mike Harris, group vice
president at Gartner, explained today to an audience of more than 1,000 CIOs and IT leaders at the sold out Gartner
Symposium/ITxpo, that interconnections, relationships, and algorithms are defining the future of business.
Software, which accounts for nearly 7 percent of IT revenue in India, will grow 12.7 percent as a segment, but within this
segment, enterprise application software will be the fastest growing sub segment in 2016, with revenue forecast to grow
16.2 percent over 2015. Communication services will continue to account for the largest share of IT spend in India and
will account for 39.2 percent of revenue in 2016, however, this will also the slowest growing segment with a 2.1 percent
increase in revenue in 2016.
INVESTMENT RATIONALE
Government's Push towards Financial Inclusion
Its key driver for growth has been the Indian Government's massive push towards financial inclusion through "Pradhan
Mantri Jan Dhan Yojana". It's objective is to bring every Indian into the banking net, including the poorest of the poor
households, by ensuring at least two bank accounts per household (at least one should be of the lady of the house).
The scheme aims to provide bank accounts to 15 crore individuals in Rural and Urban India, along with accidental
insurance cover of Rs. 1 lakh. These accounts shall be linked with the Aadhaar number of these account-holders and
will become the single point of contact for receipt of all direct benefit transfers (DBT) from Central/State
Government/Local Bodies.
Making India Digitally Empowered
Digital India is a new comprehensive e-Governance programme to transform India into a digitally empowered society
and knowledge economy. It is an 'Umbrella Mission' for various citizen centric ministries/ departments to offer services
on demand to rural citizens at the click of the mouse, setting up digital infrastructure at each nook and corner of Rural
India.
They are one of the leading e-governance players functioning as a systems integrator and an end-to-end service
provider and have been a part of various mission-mode projects for over the past two decades. With footprint in most
parts of the country, they have the "first mover advantage" to leverage this huge opportunity from the Rs. 1.1 trillion
"Digital India" mission of the Central Government.
Implementation of Aadhaar
They are empanelled in the highest category of T3F4 permitting pan-India enrollment activity. They have emerged as
the largest enrollment agency with generation of more than 42 million Aadhaar directly under the Unique Identification
Authority of India (UIDAI) project. These numbers are linked to the residents' demographic and biometric information. It
has benefitted greatly with the Government's fast-tracking of the project. Further, UIDAI an increased budget of more
than Rs. 2,000 crore for Aadhaar project in the previous year's Union Budget of FY2014-15 gives further fillip to its
growth in the business.
India’s largest e-governance player now venturing into rural banking services
For over 2 decades, Vakrangee has been involved with back-end solutions for assimilating and processing data related
to citizens and G2C interactions such as Electoral role accumulation and printing, MCA-21 automation, PDS and UIDAI.
Vakrangee outpaced other Aadhaar Enrollment Agencies (Wipro Ltd., and Swathy Smartcards Hi-Tech) and emerged
as the no. 1 player in terms of Aadhaar generation, data uploaded and no. of residents enrolled (~30 mn residents).
Vakrangee was also involved in e-governance projects for Govt. of Philippines to dematerialize land deeds and digital
record keeping.
As the Ministry of Finance and RBI rolled out the policy allowing banks to outsource rural banking operations to non-
banking entities at unbanked locations, Vakrangee grabbed this opportunity from Government of India and has been
empanelled by 26 PSU banks to set up and manage Ultra Small Branches (USB) of the respective banks at each
Panchayat Level for the state of Maharashtra, Rajasthan and Delhi. All core banking activities, financial inclusion
initiatives and the Direct Benefit transfer scheme will be routed through Vakrangee’s USBs. The company plans to
50,000 stores by FY15. The company has also acquired an ‘in-principle’ approval to set up a minimum of 15,000 white
label ATMs as an operator between the banking entity and rural customers. Since rural India accounts for 56% of India’s
income, 64% of it’s spending and 33% of it’s savings and the fact that ~68% of the population lives in rural India, the
volume of banking transactions will witness considerable traction. A target market which accounts for more than 50% of
India’s income and spending is bound to drive up the volume of transactions consequentially driving up service
revenues which in turn will boost Vakrangee’s top line.
Deposit and Credit Statistics of Rural Population
The amount of Deposits and the corresponding no. of accounts stood at Rs. 5,732 Bn and 293 Mn accounts in 2012,
growing at a CAGR of 15.3% and 8.8% between 2002 and 2012, respectively. Similarly, the amount of Credit and
corresponding no. of accounts stood at Rs. 4,422 Bn and 42 Mn accounts in 2012, growing at a CAGR of 19.7% and
5.9% between 2002 and 2012, respectively. The above mentioned numbers emphasize the increase in number of one
off as well as continuous transactions in the rural areas and thus a potentially viable target market.
Income and Consumption Expenditure in rural areas outpacing
According to NABARD’s Annual Report for FY13, the average monthly per capita consumer consumption (MPCE) in
rural areas grew at a faster rate than urban areas between 2009 and 2012. Another report by CRISIL also stated that
rural spending outpaced urban spending between 2010 and 2012. Discretionary spending of a typical rural Indian
household rose to Rs. 24,000 in 2009-10, from Rs. 14,000 in 2004-05, growing at about 11% per annum.
Imitation of regional and infrastructural monopoly– Asset light model to improve return ratios
The banking services offered by Vakrangee are on an exclusive basis for the states of Maharashtra, Delhi and
Rajasthan for a period of 5 years (upon which, can be extended for a period of 2 years). Similarly, the G2C services
offered in Rajasthan are also on an exclusive basis. Since Vakrangee has a first mover advantage in the rural space, it
has the operational/infrastructural experience and network at the grass root level that cannot be matched by any other
retail chain. As the company is operating and expanding its rural retail business on a franchisee basis, the initial capex
and incremental working capital requirement would be lower and which would translate into high return ratios.
Urban Model –Advantages
Strong brand Pull: The bank signage gives advantage to Vakrangee WLAs as customers perceive it as the
Banks’s ATM.
Revenue & Cost Synergies: Co-location of decongestion branch and WLA helps in sharing of the operating
costs. The ATM users shall also use the various value added services in terms of G2C/B2C services being
offered at the adjoining Banking outlet resulting in more avenue for business transaction.
Creation of ATM Card Base: The key for a viable ATM is to have an established card base. Co-located
decongestion branch can create the account base for successful WLA operations.
Effective Cash Management: The decongestion branch generates a sizable amount of cash at any given point
in time. This cash can be effectively deployed at the adjacent WLA, thus efficiently managing the cash
replenishment in ATM machines, and reducing the logistics issues and risks.
UID enabled ATM transaction: All WLAs set up by Vakrangee will be AEPS-enabled (Aadhaarenabled payment
system), further adding the market size of the ATM industry from the number of ATM cards to number of UID
thereby covering the entire population of the country once the UID programmes is completed.
Significant Cost Savings and security enhancement: The AEPS-enabled ATMs of VL will not require ATM card,
and people can perform various financial/non-financial transactions only with the biometric authentication. This
will significantly reduce the card-issuance costs as well as cloning like security issues can be obviated. The
AEPS-enabled WLAs will be a global first in the history of WLA industry.
VALUATION
VAKRANGEE is currently trading at 164 per share with a market capitalization of 8821 Crores. It has total debt of 416
Cr with long term Debt to Equity of 0.02. It has total cash and bank balance of 39.20 Cr.
The debt reduction was driven by the company's robust operating performance, surplus in working capital, lower capital
expenditure and the proceeds from its asset sales.
2012 2013 2014 2015
Key Ratios Debt-Equity Ratio 0.8 1.07 0.8 0.46
Long Term Debt-Equity Ratio 0.2 0.32 0.18 0.06
Current Ratio 1.04 1.15 1.32 1.76
Turnover Ratios
Fixed Assets 2.3 1.98 2.17 2.73
Inventory 64.16 39.57 18.05 16.76
Debtors 3.76 2.82 2.75 2.83
Total Asset Turnover Ratio 1.93 1.59 1.67 1.92
Interest Cover Ratio 2.84 2.67 4.62 7.53
PBIDTM (%) 18.19 24.99 27.7 26.22
PBITM (%) 11.73 14.84 18.44 20.29
PBDTM (%) 14.07 19.44 23.71 23.53
CPM (%) 11.7 16.89 18.23 17.5
APATM (%) 5.24 6.74 8.96 11.57
ROCE (%) 22.59 23.53 30.74 38.91
RONW (%) 18.28 22.28 27 32.4
Payout (%) 14.47 9.79 7.29 3.94
We value VAKRANGEE using DCF at price target of 192 for FY16 with expected growth rate at 16.54% per annum. For
valuation we assume that over the period company will keep capital structure unaltered and tax rate unchanged.
EQUITY - BONUS HISTORY
Year Ratio Book Value -Unit Curr EPS -Unit Curr
2012 1:01 146.62 20.4
Dividend History
Year End Dividend-Amount Dividend-% Div. Yield-%
201503 12.59 25 0.24
201403 12.59 25 0.25
201303 10.05 20 0.3
201203 10.01 20 0.72
201103 4.99 20 0.6
201003 3.37 15 1.45
200903 2.14 10 3.99
200803 4.28 20 1.01
CONCUSSION AND RECOMMENDATION
Nifty 7750
Sensex 25600
NIFTY IT 10950
With Superior project management skills, focus on measuring and monitoring quality and its planned expansion
Vakrangee will be able to grow over the next few years. We recommend BUY on the stock at CMP of Rs. 164 to target
of Rs. 192 (Forward EPS of 8.89x FY16).
RISKS AND CONCERNS
Increase in competition and pressure on pricing
As competition increases, acquiring and retaining customers would be challenging. In a highly competitive environment,
customers have tough expectations on pricing.
Low oil prices present a two-sided risk.
On the downside, oil prices could rebound faster than expected if supply is curtailed more quickly in response to lower
prices, withdrawing support for demand. On the upside, the demand impulse from the boost to real incomes from the oil
price windfall could be stronger than currently anticipated.
FINANCIALS
Vakrangee Ltd. key Products/Revenue Segments include
Income From e-governance which contributed Rs 2773.34 Cr to Sales Value (99.92% of Total Sales)
I T Enabled Services which contributed Rs 1.72 Cr to Sales Value (0.06% of Total Sales)
Computer Parts & Peripherals which contributed Rs 0.22 Cr to Sales Value (0.00% of Total Sales)
Sale of services which contributed Rs 0.09 Cr to Sales Value (0.00% of Total Sales)
Scrap which contributed Rs 0.00 Cr to Sales Value (0.00% of Total Sales)
for the year ending 31-Mar-2015.
For the quarter ended 30-Sep-2015, the company has reported a Standalone sales of Rs. 783.86 Cr., up 11.83% from
last quarter Sales of Rs. 700.95 Cr. and up 12.32% from last year same quarter Sales of Rs. 697.85 Cr. Company has
reported net profit after tax of Rs. 95.36 Cr. in latest quarter.
Some Initiatives
Management Reward
Yearly Income Statement 2014 2015 2016 E 2017 E 2018 E
Net Sales 1951.89 2780.45 3232.00 3756.87 4366.99
Other Income 6.16 5.91 12.50 9.00 9.00
Total Income 1958.05 2786.36 3244.50 3765.87 4375.99
Total Expenditure 1417.3 2057.26 2375.52 2755.66 3194.45
EBIDTA 540.75 729.10 868.98 1010.21 1181.54
Depreciation 180.87 164.86 175.40 179.30 183.20
EBIT 359.88 564.24 693.58 830.91 998.34
Interest 77.89 74.95 68.59 63.085 57.58
PBT 281.99 489.29 624.99 767.82 940.76
Tax 118.74 182.49 171.87 205.39 254.01
Deferred Tax 11.72 15 17.43 20.07 22.71
Adjusted Profit After Tax 174.97 321.80 470.55 582.50 709.46
Minority Interest After NP 0.06 0 0 0 0
Adjusted Profit After Extra-ordinary item 174.91 321.80 470.55 582.50 709.46
Equity 50.42 52.92 50.35 50.42 52.92
EPS (Unit Curr.) 3.31 6.08 8.89 11.01 13.41
Face Value 1 1 1 1 1
Outstanding Shares 5.29E+08 5.29E+08 5.29E+08 5.29E+08 529160000
EBIDTA Margin 27.70% 26.22% 26.89% 26.89% 27.06%
EBIT Margin 18.44% 20.29% 21.46% 22.12% 22.86%
PAT Margin 8.93% 11.55% 14.50% 15.47% 16.21%
Segmental Results (Standalone)
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