Buy Nucleus Software Exports; target of Rs 390: Dolat Capital

Dolat Capital's research report on Nucleus Software Exports

Results were ahead of estm with a revenue growth of about 8.8% YoY at Rs 1.38bn (our estm at Rs1.32bn) and OPM at 20.3% against our estm at 16.5% - profit beat led by reversal of variable pay provisions. Order book stood at Rs 4.4bn, implies 18% growth YoY (flat QoQ) with new 8 new product order wins in the quarter, adding 4 new logos. It also completed 24 product module implementation in Q4 (65 for FY20). Order book is encouraging but management unsure about timely ramp-up of the order as initially planned. Profitability is likely to remain resilient as company has taken several cost measures such as compensation cut by Sr mgmt. team, no wage hikes and savings on travel/operational front.

Outlook

Despite the clear commentary by banks/IT peers towards investments in digital channel, we see the business may take a temporary hit on revenues given slower decision making in the short-term on new sales and delayed ramp-up in implementations. Thus, we continue to remain positive on its prospects given its superior product offering, tailwinds in cloud-based offerings, healthy order book and strong cross-sell opportunity and maintain our Buy rating with DCF based TP of Rs 390 per share (implies 1x on EV/Sales and 6x on EV/EBIT on FY22E).

Nucleus Software Exports 27052020 For all recommendations report, click here