Custom e-payment solutions provider RS Software’s third quarter consolidated net profit climbed 2.4 percent sequentially to Rs 17 crore, supported by strong operational performance and higher other income. However, the profit growth was restricted by fall in revenues.
Discussing the company’s earnings, CMD Raj Jain said he sees a further improvement in payment business going forward and expect to achieve 22 percent growth in FY15.
RS Software’s Q3 operating margin stood at 25.1 percent against 24.8 percent (QoQ). “We expect to end FY15 with operating margin of 25 percent,” Jain said.
Below is the transcript of Raj Jain's interview with CNBC-TV18's Menaka Doshi and Senthil Changalvarayan.
Menaka: Can you take us through your numbers?
A: We have had a wonderful quarter very much on track with revenues around Rs 97 crore. We have had a growth of about 26 percent in our profit after tax over the last year. Our networth has grown by about 35 percent and our operating margin is up to 27 percent.
We believe that moving forward we can commit double digit growth in our profitability. As a result of that our board is pleased to announce today an interim dividend of 15 percent. We believe in rewarding our stakeholders continuously.
Last year in our 9 months our cumulative interim dividend was about 25 percent and this year it is up to 40 percent.
Menaka: On both the topline and the bottomline your numbers don’t look very good. In fact your stock is currently falling even as we talk down 5 percent. The consolidated total income has come in lower quarter on quarter (QoQ). Consolidated profit is barely higher QoQ. Can you talk us through what the outlook is from hereon?A: Let me tell you that our Q3 is traditionally our weakest quarter. If you look at our any year in the past that is because of our major clients this is their Q1 of the fiscal but for us it is Q3. Typically our revenues are about 8 percent lower in the quarter. This year it is down only by about 4 percent. So, we believe Q3 is on track. Our bottomline is actually up.Menaka: Revenue growth has been a problem through the fiscal, hasn’t it? Revenue growth has been very sluggish through the fiscal, is it likely to improve in the next fiscal that is FY16?A: The answer is yes. We have a major client concentration which is well known to the investor community and we are in the transition of de-risking the client concentration. Where we are headed is to leverage on the major developments in the payments industry and as you probably would know that the move is towards the digital economy.
Senthil: At the beginning you said your profits were up about 26 percent. However the numbers in front of us say Rs 16.6 crore to Rs 17 crore. So, can you break up consolidated and standalone. So, when you say 26 percent what are you referring to?A: 26 percent is the growth in the net profit after tax from the same quarter last year. That is on a consolidated results, year on year. Our networth is up 35 percent year on year. Coming back to the digital economy and which is really where we have seen recently crazy valuations for company like Alibaba or Amazon or here at home in India for Flipkart, Snapdeal and Paytm recently. As these companies are building themselves for the e-commerce space there needs to be a parallel build for payment companies to be able to connect commerce and payments together. You have heard of Apple Pay recently being launched globally and we are an integrator for the Apple Pay with the merchants and with the acquirer community. Apple spent last year about USD 25 billion on their developer community. We see this trend moving forward and if we were to transition you are looking for the longer term picture of the company, we look at ourselves on one hand continuing to work with the core system in the payments of authorisation and settlement and at the same time leveraging this knowledge to build on to analytics and the social media.
Menaka: Your first half revenue growth was barely 2 percent, this quarter gone by revenue has shrunk, can you tell me what revenue growth you will end FY15 with, what is your expectation for revenue growth is for FY16 and also can you tell me what the margin picture looks like because that data we don’t have as of yet? A: We look at this year with a growth in our profitability of about 22 percent year-on-year (YoY). That is where we expect to end the fiscal year. We see a continuing trend for ourselves in the next fiscal and we see an improving trend beyond that as we are launching our M&A strategy. We are in advanced stages of it.Menaka: Could you give me specific numbers, what is the FY16 revenue target, what is the margin expectation for this year when you close it and the margin expectation for next year in terms of growth? A: Our margin expectation for this year for this quarter has been 27 percent for the operating margin level. I think for the year it will be an average of about 25 percent for our operating margin levels. In terms of our FY16 and FY17, what I am trying to communicate here is that we are transitioning our strategy in order to expand into the digital payments opportunity and that is an important factor for the investor community.Senthil: Some of the growth you said will come through M&A, so we believe you are sitting on cash of about a Rs 136 crore so all of this earmarked for M&A or something else? A: Rs 150 crore cash that we have as of December 31st is earmarked primarily for our M&A activity. At the same time, while we execute that like I mentioned in the early part of the interview that we are rewarding our shareholders with dividend as well.
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