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December 10, 2014

Hidden Treasures and e-commerce Play : Intrasoft Technologies Ltd (CMP 52)

           As per new regulations of SEBI, it seems that only SEBI qualified research analyst can express buy , sell , hold , accumulate etc. recommendation about a stock through any public media. SEBI has given six months time(May2015) to comply with it for existing research analyst .I am not SEBI qualified research analyst but I am aspire to become research analyst in next 3-5 years .So , purpose of this blog learn and put analysis of company with whatever I know and get input from SEBI qualified research analysts . I am sure this learning method will help me to become SEBI qualified research analyst one day.I think this rule is quite appropriate since how can person like me who is still learning give any opinion of buy , sell particular stock.

              Today, I would like to get input on "Intrasoft Technologies Ltd" . Since you are experience research analyst you will say what is special here . They have www.123greetings.com which offer greeting services free of cost, generate revenue from add services and as per current market cap trading fairly .

            My interest in this counter is not generated because of www.123greetings.com but something else . Look at the following screen shot and let me know if a e-commerce company in USA growing with these figures wouldn't attract your interest . How much will you pay for this company ?


Source : http://www.inc.com/profile/123stores


This is nothing but http://123stores.com/ e-commerce division of 123greetings.com USA which is wholly own subsidiary of "Intrasoft Technologies Ltd" .

 Please look into following links for highlight of last quarter . We cannot compare data directly with Snapdeal and Flipkart . It is growing fast with small base , same time present tremendous opportunity for me to participate in growth of e-commerce since very few e-commerce companies are listed like Info Edge , Just Dial etc. Those are available at high valuations and already discovered by market .
http://www.itlindia.com/investor-relations/press-releases/Intrasoft-Technologies-Limited-Reports-128-Growth-In-Revenues-For-Q2-FY-2015
During the quarter they entered the US Internet Retailer Top 500 list at 499 from last years more than 650.

I still need to analysis business model but as per my initial analysis it generate revenue by two ways .
1. Partnership with other top USA marketplaces (“shop in a shop” format) like Amazon, Ebay .We can describe in another words as marketplaces inside marketplaces .If it get commission from register vendors and not hold actual inventory . I do see quite low inventory in balance sheet .
2. Direct sale from http://123stores.com/ . I believe this is small portion at the moment since as per Alexa only around 5000 unique visitor visit daily this site but that count is also growing fast .
 http://123stores.com.alexaview.com/

 Open question to management .

  1.  What is mix of above mention channels ? 
  2.  You mentioned "Our growth in the E-commerce business can be directly attributable to the strength of our proprietary enterprise software" . What are these strengths ?


 I do also see good growth potential in http://www.123invitations.com/ but they need to make UI impressive and add few more value added features.

 123Stores, Inc, reported record sales over the long holiday weekend from Thanksgiving Day through Cyber Monday of over $2 million, a 243% percent increase over last year. The Company sold one item every 7 seconds on Cyber Monday.
 Please refer http://www.webwire.com/ViewPressRel.asp?aId=193500#.VIhzAdKUf3Q


 Shareholding pattern:





Kotak Mahindra Investments Ltd was holding around 6% share but recently they have release around 3% share . Not sure who has pledge those share since no promoter shareholding was pledge may be some HUF . As you can see retail investor holding is not even 10% in this stock . All the shares are in strong hands .
"Intel Capital (Mauritius) Limited" also hold around 12% of "Intrasoft Technologies Ltd" which gives confidence but I believe it is may be just strategic investment by Intel .

Corporate Governance :

I am still learning to scan corporate Governance level . I have not found any red flag as such . Just need to dig more on Kotak Mahindra Investments Ltd's release of shares . I saw around 465 crores of cash in balance sheet of 2009-10 but next year was reduce to just 3 crores . I was at my wits end to figure out where they have spent so much money or spinned off but when I check annual report of 2010 and 2011 then I realized it was IPO money company had received(before financial year ending) due to over subscription and returned it next month(year) . So no issues on this front .
"Intrasoft Technologies Ltd" also put audited annual reports of it subsidiaries on their website that is good move .http://www.itlindia.com/investors/financials.html

Valuation :
          e-commerce companies are getting valuation based on sales instead of PE . The range stars from 3x and goes to 7-8x . "Intrasoft Technologies Ltd" has sales of around 220 crores in last trailing 4 quarters and expected to finish this financial year with more that 280 cr of revenue . It has only 75 crores of market cap right now .

E-commerce companies need lot of time to start making money so we should concentrate on top line instead of bottom line

Alibaba for the first 10 years continued to make a loss, it was only in last three years that they started making money and this year it was several billion dollars of net income and it is growing very quickly. They were not in a rush to start making money; rather they created a robust platform, good services and good number of merchants on the platform. As per them This is still the investment stage and not the harvesting stage.

Apart from top line growth and debtor turnover ratio nothing looks good for this company but that is the case with most of ecommerce companies when they are in investment stage .


Future Plan :
       They are going start using platform of Alibaba similar to Amazon ."Intrasoft Technologies Ltd" is also planning to launch same platform in Canada which will again help top line to grow and obliviously they will target India as well . If that happen then top line growth will again get some boost . Management has also indicated that "We continue to focus on growing the business and re-invest the cash surplus’s back into the business. As a result, in the short term, the bottom line may not correspond to the topline growth but we are confident that once economies have reached, it will yield even greater financial results."  They can easily leverage huge database of customer base of www.123greetings.com to promote new e-commerce website.

Conclusion : 
             It is not Flipkart or snapdeal , business model may not be same but for me it is Flikart or Snapdeal of poor man. If it achieves even 3-4% of flipkart in next  4-5 years then that will sufficient to create some wealth.I am sure If I dig more then I will get few more positive and negative but at current market price of 52 market cap of company is only around 75 crores , growing fast, it holds cash around 8.33 crores and dividend yield is around 2% . I believe at this price I am not going to loss much but if not all the things but most things click for this company then sky is the limit who knows. I would like to get input from qualified research analyst on my analysis made for myself .



10 comments:

  1. Excellent analysis . I will look ,in detail. It is long gap you have written a Nice article. Missing your article . With warm Regards
    Mahesh Vakharia.

    ReplyDelete
    Replies
    1. Thanks Mahesh , Please let us know what you find in your analysis .

      Delete
  2. While the company has many positives, i will try to focus just on weak points in order to come up with strong reason to ignore the stock. That is usually the process i follow to filter.

    =================
    Valuation :
    e-commerce companies are getting valuation based on sales instead of PE . The range stars from 3x and goes to 7-8x . "Intrasoft Technologies Ltd" has sales of around 220 crores in last trailing 4 quarters and expected to finish this financial year with more that 280 cr of revenue . It has only 75 crores of market cap right now .
    =====================

    1) There has to be some really good reasons that why none of the big value investors are fond of pure e-comm listed players.
    2) Also we are not sure what valuations will be there for E-Comm players 3~4 yrs down the line ( as you target) . I wouldn't really ride on the current market wisdom of valuations based on multiple of sales.
    3)The values currently offered are not by market but by VCs. A good VC can hold and support the company for 15+ years.
    4) They also bet on many companies knowing that good % will fail. Will Fail and will not be successful are different for retail investor with a time frame of 15 yrs.
    5) As I understand in pure tech driven space, or often winner takes all , or the top 3 takes 95% +.

    Some more points
    1) Company was experienced player in Internet space before flip kart and others. How come they missed to clone the model in INDIA before others ?
    2) There were no social pluggins on popular networks to move with changing times.
    2.1 Mobile Apps came very late ( just last year).
    3) I couldn't find lot of HTML5 content. Its still flash driven. It talks about tech trend adoption speed.
    4) Lack of new feature integration. Look how quickly Evite is capturing market .
    5) A lot of greetings has moved from Internet to OTT (Whatsapp). Sticker market recorded 100%+ CAGR for last 2 yrs. Company still hasn't made any move in that area.
    This is probably because Large customer base is in US. Whatsapp doesn't support sticker market. But that will be a very myopic view.
    6) Annual Report doesn't hints on good future strategy.
    7) Its a technology company with all key management comprising of non technical promoters.
    8) Some Non Current investments not carried forward from 2013 to 2014.

    ReplyDelete
    Replies
    1. Thanks korairan for providing quick in depth analysis .

      I agrees in the past they have not done enough , else It could have been excellent company and would have not been available on this valuation .
      My portfolio is right now full with quality stocks where financial ratios are good and profit growth is also good .
      Now I would like to allocate some percentage of my portfolio new sun rising sector with huge growth potential like few investors made money in Pantaloon . My allocation is small and I don't care about bottomline for now . Being Value Investor It is hard to invest in companies like this but for change I want to try may be I will be get proved wrong but that will be learning experience .

      I am only bullish on e-commerce division (shopping business). It is growing fast . I am not at all bullish on 123greetings.com website . I see potential market in invite but you already mentioned it is not up to mark . I tried to send test invite you know what validation message I received ? Host name can note be more than 15 chars . ooopss ..........

      I also do not find this companies quality as good as snapdeal , flipkart or any . Market size is such huge if they get only 1 % share of all targeted markets then that that will give us good return. I know management does not look dynamic and impressive as far as past in concern but may be they have learn their lesson with experience .

      Delete
  3. Sir,Thank for this pick.
    happy to know that it is second listed ecommerce play.
    Vaibhav global with sales of 1000 crores had reached a market cap of Rs 2500 Crores recently before correction to cmp.
    Intrasoft had seen good growth in past few years.
    it is debt free and profit making as compared other companies.
    I myself preffer to buy online these days rather than going to the market.
    This speaks the future of online retail stores......
    it is a gem of a stock. it is missed by many investors, not rallied at all in the recent bull run.
    disc:I am planning invest in this stock.

    Kindly put more recommendations like this one on the blog.. the unknown one's and hidden one.

    Thank you

    ReplyDelete
  4. Additional Follow up Thoughts :

    "Intrasoft Technologies Ltd" is not value investing pick even though it offer margin of safety . It is play for address huge growing market(e-commerce) .Today, Snapdeal has acquired Wishpicker.com . We know that is good quality website . I know 123greetings.com or 123invitations.com are not that much impressive websites but if we visit http://123stores.com/ then It looks comparable to other similar shopping websites and their backend integration with Amazon is also impressive if not difficult copy . Contribution of http://123stores.com in revenue of e-commerce division is minor right now but through SEO "search engine optimization" and marketing they can increase it many fold.
    If you talk to any investor about "Intrasoft Technologies Ltd" they talk about 123greetings.com and not many know about http://123stores.com or their e-commerce shopping division in USA .
    This division is growing fast and we can not ignore it . There are two possibilities either that growth is fictitious or real . Chances of fictitious are quit low since
    1. Most of e-commerce companies are making growth like this .
    2. They have put their audited annual reports of US and other subsidiary companies on website.
    3. If you analysed pattern then we can say most of the cheating/fraud happen in companies where retail investors shareholding is at higher end .

    Management may not be dynamic as other e-commerce website in past but we can not ignore their recent growth . It will be catch by eye of Market soon and may be some broker house will consider for their research . if a company chasing (e-commerce) and they don't want to buy high quality high price company but they want some existing platform and revamp it then 123greetings.com or 123invitations.com will be candidate . Biggest asset of these websites is customer database created by this companies in last decade or more . But for growth I am not looking for these two websites I am just bullish on http://123stores.com and their business on associated channel partner like Amazon and eBay .

    Imagine if their platform works in India then buyer can come from any top e-commerce websites that will create huge opportunity . But first I need to know what is that platform ? How difficult to build it ? If somebody has access to management then please discuss to these type of questions and let us know .

    ReplyDelete
  5. Respected Sir ,
    THANQ very much once agin . While searching for details o this. , I found very other good company , i.e. Infinite Computer. And solution . An interesting case . I am very poor in Analysing the figures. I am good at writing programme abut bad with figurines.
    You can have a look at this company . You have a nice knap at the figures . And I respect. For that .
    With regards,
    Mahesh Vakharia

    ReplyDelete
  6. Very interesting I wish very best of luck to become research author. Even I have stumbled upon this share ASSOCIATED ALCHOLOL & brewery ltd it got the attention because the revenue and profit growth on 3 yr CAGR is 35% and 45% the promoter holding 58% and recently increased stake by open market purchase. Authorised share capital is 1.1 cr issued is 90 lacs. No preference capital, no warrant no pledge. Mr anand kumar kedia seems to be a decent man unlike other liquor baron. They have renovated the distellery recenTly they have both grain based and molasses based distellery they are in all the vertical like IMFL, IMIL, RS, BOTtTling, They are leading supplier of grain distelled ENA to vodka brands SMIRNOFF, ABOSULTE, GREYGOOSE, They are only BOTTLERS of single malt glen DRUMMOND they are only bottling agreement for HAIG SCOTH the fy 15 rev expected at 300 cr EBITA at 36 cr np at 16 cr EPS OF 16 debt reduced to 56 cr in sept qtr. The negative is no dividend and the sector iam have not invested in this but thought it is intersting I want you guys to share your views about whether to consider it for long term please your suggestions is welcome thanks and happy new year.

    ReplyDelete
  7. i have look on it that alexaview
    have a real statistic and good seo

    ReplyDelete

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