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March 13, 2011

Value Pick 5 : Nucleus Software Exports Ltd.

 Note : SOLD ALL Holding  Dec 2014 with avg price of 210

My new value pick is Nucleus Software Exports Ltd . This value pick is again of asset value stock type based on Graham's teaching. 
History : 
             Nucleus Software Exports Ltd (NSEL) was incorporated in Jan.'89 as Nucleus Software Exports Pvt Ltd and was subsequently converted into a Public Ltd in Oct.'94. The Company was promoted by 3 enterprising technocrats Yogesh Andlay, Vishnu R Dusad and Arun Jain with an object to deliver quality information technology solutions to the business world. Nucleus Software Exports Ltd is a global software company engaged in providing products and software solutions to the banking and financial services industry . It provides solutions for retail banking, corporate banking, cash management, Internet banking and credit cards. Its products include Finnone, Cash@will and BankOnet. Finnone provide suite for retail banking applications comprising of modules like customer acquisition system, loan management, delinquency and recovery management, deposits and finance against securities. Cash@Will and BankOnet are the offerings in the area of cash management and Internet banking respectively. The company counts ICICI bank, HDFC, SBI, Reliance, DBS, Citibank, Standard Charted, Axis Bank, Indiabulls, Religare, Mahindra Finance as its major clients in India. HDFC Bank has implemented the complete suite of FinnOne at an enterprise level and supports Retail Assets Business across it over 1400 branches spread across over 550 towns and cities across India.

How Value Buy (CMP 78):

          Current market price of Nucleus Software Exports Ltd is around Rs 78 which translate into market cap of 252 crores . You are getting Nucleus Software Exports Ltd in effective market cap of around 5 crores only . How ? Let me explain you .
            Nucleus Software Exports Ltd is zero debt company.Nucleus Software Exports Ltd has investment of 138.86 crores on consolidated balance sheet as of 31st December 2010 . Nucleus Software Exports Ltd has current asset of 160 crores (Including 56. 5 cr cash ) and has Current liabilities and provisions
of 58.8 crores . So, Net Current Assets is 101.86 crores as per consolidated balance sheet on 31st December 2010 . Click here  for more details .

         So, Nucleus Software Exports Ltd has investment plus NCA of around 240 crores ( 138.86 + 101.86 ) . So we are getting Nucleus Software Exports Ltd on effective market cap of merely 12 crores . We are also approaching towards quarter end and if we assume that Nucleus Software Exports Ltd would show PAT of 7 crores in Q4 and if that amount get added to balance sheet then we can say that we are getting Nucleus Software Exports Ltd on market cap of merely 5 crores .I have also like sundry debtor figure of Nucleus Software Exports Ltd , which is quite low and reduced from 58 crores to 38 crores as on 31st December 2010 . If overall market falls then possibly we may get Nucleus Software Exports Ltd below Rs 70 also . That will be screaming value buy. Icing on cake of consistent dividend paying record with CMP Rs 78 dividend yield comes to 3% .  

Management and Corporate Governance :

          If you compare Nucleus Software Exports Ltd with same market cap companies (around 250 cr) then I believe it is one of the best company while disclosing information. I am quite impress with detail information provided by Nucleus Software Exports Ltd that too on quarter to quarter basis . Go to and you will find all the details .
         I have gone through balance sheet of Nucleus Software Exports Ltd and didn't find any red flag as such . If you find anything then please share with us.
         There are other IT companies are also available below cash value but there are either issues with corporate governance or money is lying in unknown foreign banks in tax heaven countries. e.g. Tanla Solutions Ltd (Huge corporate governance issues , high Sundry Debtors) Aftek Ltd and Hinduja Global Solutions Ltd (numbers look suspicious) This is very nicely explain by our Indian value investor guru prof. Sanjay Bakshi (
Nucleus Software Exports Ltd has most of cash in either Indian scheduled banks or in reputed foreign banks in overseas account. 

Why it is available so cheap :

             Most of MFs and FI chase growth and last few quarter company has reported below expectation numbers while front line IT companies are showing good numbers.
            Libya and middle east crisis affected stock price of Nucleus Software Exports Ltd since Nucleus Software Exports Ltd gets good amount of revenue from middle east region and trying to expand there.

Catalyst to achieve Intrinsic value :

              Company is doing expansion and launching new products in the market .Nucleus Software Limited has been investing substantially into next generation banking products.The Manpower numbers are at 1647 as on December 31, 2010 . Nucleus Software Limited had acquired 17.41 acres of land in the IT/ITES SEZ of Mahindra World City, Jaipur and is developing the land as a co developer with requisite Government approvals. The Jaipur campus will be fully equipped with cutting edge computing systems and software platforms, dedicated high-speed data communications network, and backup power sources to provide reliable and cost effective solutions to customers. In the first phase, the company will set up its unit on an area of 2.87 acres of land and will have a seating capacity of 250 personnel with an expected investment of Rs. 5 crores. This first unit of this campus will be operational in the first quarter of calendar year 2011.

            Nucleus Software Exports Ltd has two segments.

1. Products
2. Projects and Services
            Company is trying to give more focus on product revenue which is recurring type of revenue.

Downside Risk :

Quite Low.

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HAVE A NICE DAY .............. 


  1. Hi I really like your picks and the way of your thinking (Ben Graham style) . Would like to point out some issues in your analysis . Ben Graham has said that while going for bargain issues you should take current assets not at what it is reported but reduce it by 25-50% depending on the company to be conservative .
    Your analysis is just taking the whole of current assets which should NOT be the case . (check out page 587 of The Security Analysis) . You must reduce invetments/current assets by at least 25% and pay off complete liabilities to be really conservative .
    So Current Assets should be 120 cr (75% of 160) . So net current Assets is 120- 59 = 60(apprx)
    Investments is around 100 cr(approx) (75% of 103)

    So instead of investment plus NCA being 240 cr as you mentioned its actually 160 cr only .So effective market cap is not merely 12 cr but 252-160= 80 Cr.

    Then after this your margin of safety is going down. Pls share your thoughts on why I should NOT write down the current asset/investment values by at least 25% (of course i am assuming company is not producing Ipads ;-) such that its inventory/current assets are of top notch quality )

  2. Hi Amit ,
    You are right Nucleus Software Exports Ltd does not fully fits in graham's deep value criteria .If you go by Graham's deep value buy formula as it is , then it is very difficult to find such companies with good corporate governance and above 50 crore market cap.

    Graham used to look for companies whose market caps were less than two-thirds of that net-net Current asset value. We can use following formula for net-net value

    Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities

    Now If we apply this formula on Nucleus Software Exports Ltd(Dec 2010 consolidated data) then net-net Current asset value comes to 191.39 cr.

    Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities

    Cash and short-term investments = Investment 138.86 + cash 33.30 = 172.16 ;
    accounts receivable = Sundry debtors 37.8 + Even include "Loans and advances" 33.3 + Include even "Other current assets" 32.99 = 104.09 ;
    inventory = 0 ;
    total liabilities = debt 0 + Current liabilities and provisions 58.84 = 58.84

    172.16 + (0.75 * 104.09) + 0 - 58.84 = 191.39

    So ideally Nucleus Software Exports Ltd will become deep value buy on market cap of 127.59 ( 2/3 of 191.39 ) against current market cap of around 240 crores.

  3. The topic is explained very well and makes us aware about the investment psychology of greed, fear and hope.

  4. There are rumors that top executives are leaving Nucleus software. Any info or views on the same?



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