Buy Nucleus Software; target of Rs 680: P-Sec

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Buy Nucleus Software; target of Rs 680: P-Sec

Broking house, Sharekhan keeps buy rating on Nucleus Software Exports with a one-year price target of Rs 680.

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Broking house, Sharekhan keeps buy rating on Nucleus Software with a one-year price target of Rs 680.

Sharekhan report on Nucleus Software:

Key points

Niche player with established presence:

"Nucleus Software Exports (NSEL) is a niche player offering software products and services to companies in the  banking and financial service space. It has established itself globally with product installation base of over 250 application modules in more than 30 countries."

Product business drives growth:

"The product business grew exponentially in FY2006, on the back of some impressive order wins like the $12-million multiyear deal with GMAC. Apart from this, it added 21 new clients and bagged orders for 38 new installations in FY2006. In the first half of FY2007 also, the company added 14 new clients and continued to grow its pending order book that stood at Rs 135 crore as on September 2006. Consequently, we expect the product revenues to grow at a CAGR of 67% over FY2006-08."

Margins are sustainable:

"In spite of the cost pressures and the aggressive employee addition targets for this year, the company is likely to sustain its overall profitability. The growing contribution from the high-margin product business is expected to mitigate the adverse impact of the rising wage bill and  the expansion-related pressures in the intermediate term." 

Alliance could throw positive surprises:

"The initiatives to forge joint marketing alliances with global technology giants and develop a network of channel partners could result in higher-than-expected order bookings. The partnership model has already started yielding results."

Valuation:

"Revenues and earnings are estimated to grow at CAGR of 38% and 40% respectively over FY2006-08E. At the current price the stock trades at 11x its FY2008 earnings, which is relatively cheaper compared with the peer companies. We recommend a Buy on NSEL with a one-year price target of Rs 680."