Four Soft Ltd
HOLD
Target Price: Rs.29.00
Market Cap.: Rs.975.49mn.
CMP: Rs.25.20
Date: March 10, 2010
Key Ratios:
Particulars
OPM (%)
NPM (%)
ROE (%)
ROCE (%)
P/BV(x)
P/E(x)
EV/EBDITA(x)
Debt Equity Ratio
Key Data:
Sector
Face Value
52 wk. High/Low (Rs.)
Volume (2 wk. Avg.)
BSE Code
FY09
35
23
28.04
36.72
0.61
2.18
1.44
0.08
FY10E
14
8
6.59
8.86
0.57
8.67
5.1
0.08
IT & Outsourcing
Rs.5.00
35.80/12.00
23634
532521
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
[email protected]
FY11E
17
10
8.34
11.63
0.52
6.28
3.71
0.08
SYNOPSIS
•
Four Soft is one of the world's largest
transportation and logistics software Products
Company providing innovative and integrated
enterprise solutions ensuring customer satisfaction.
•
Four Soft Ltd is bringing top players of the logistics
industry on a single platform to form a strategic
initiative- FFIFA.
•
Four soft Ltd, Mondial Logistics has selected 4S
eLog to automate the management of its
warehouses throughout its locations in the
Netherlands.
•
Four Soft have approved and accorded their
consent for Employee Stock Purchase Scheme 2009
not exceeding 19,48,000 equity shares.
•
Net sales and PAT of the company are expected to
grow at a CAGR of14% and 25% over 2008 to 2011E
respectively.
Share Holding Pattern:
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
[email protected]
1
Table of Content
Investment Highlights ............................................................................................................ 3
Company Profile…………………………………………………………………………………………………………………….6
Peer Group comparison………………………………………………………………………………………………….….….7
Keyconcern………………………………………………………………………………………………………………….…………7
Financials……………………………………………………………………………………………………………………………….8
Charts………………………………………………………………………………………………………………………….………..10
Outlook and conclusions……………………………………………………………………………………………………....12
Industry Overview…….…………………….……………………………………………………………….………….…….. ..13
2
Investment Highlights
Q3 FY10 Results Update
Four soft Ltd reported a substantial drop in consolidated net profit for the quarter ended
December 2009. During the quarter, the profit of the company declined 65.64% to
Rs.36.63 million from Rs.106.58 million in the same quarter last year. Consolidated net
sales declined 29.93% to Rs.333 million from Rs.475.56 million in the same quarter last
year, while total income for the quarter fell 29.42% to Rs.345.41 million, when compared
with the prior year period. The EPS of the company is registered Rs.0.95 for the quarter
ended December 31, 2009.
Quarterly Results - Consolidated (RS in mn)
As At
Dec-09
Dec-08
%change
Net sales
333.23
475.56
(29.93)
Net profit
36.62
106.58
(65.64)
Basic EPS
0.95
2.75
(65.64)
To form a Global alliance to drive efficiencies in logistics software
Four Soft Ltd is bringing top players of the logistics industry on a single platform to form a
strategic initiative- FFIFA (Freight Forwarding Industry and Four Soft Alliance). The
objective is to provide a forum for the exchange of ideas where the resultant `industry
best practices` will save the industry time, energy and money in providing better services
to its customers.
Freight forwarding and Logistics industry over the years has been struggling with lack of
unified and standard business processes / metrics resulting in very high operating costs
3
and making them less competitive. FFIFA members will collaborate to help the evolution
of unified and standard business practices across multiple tiers and geographies. Major
benefits include access to all information, standards and metrics, better understanding of
changing business dynamics and understanding of tangible and intangible benefits of IT in
Logistics.
Secures contract from Mondial Logistics
Four soft Ltd, Mondial Logistics has selected 4S eLog to automate the management of its
warehouses throughout its locations in the Netherlands. The contract was executed
through Four Soft Netherlands BV, a subsidiary of Four Soft, India.
Mondial Logistics is one of the leading logistics and transportation players based out of
the Netherlands. It provides various kinds of services such as warehouse management,
Freight management, logistic consultancy and customs clearance facilities to its
customers.
Bags a contract from Sherritt International Corp
Four Soft has announced that Canadian based Sherritt International Corporation has
selected its Integrated Logistics management system 4S Visilog plus to be implemented
across its multiple locations.
Sherritt International Corporation is a Canadian based diversified natural resource
company that produces nickel, cobalt, thermal coal, oil and gas, and electricity licensing its
proprietary technologies to other metals companies.
A low-cost operator across all segments, Sherritt`s success is built on utilizing proven
technologies and financial and operational expertise to increase productivity and
4
profitability, Sherritt is a world leader in the production of nickel from lateritic ore, with
operations in Cuba and Canada, and a significant project under development in
Madagascar. With nine surface mines, Sherritt is the largest thermal coal producer in
Canada, and is developing Canada`s first coal gasification project.
Grant stock option
Four Soft have approved and accorded their consent for Employee Stock Purchase
Scheme 2009 not exceeding 19,48,000 equity shares, allotment of equity shares to the
employees of subsidiary and step down subsidiary company under Employee Stock
Purchase Scheme 2009.
Samudera goes live with Four Soft`s 4S iShipping sol
Four Soft has announced that its premier customer, Samudera Shipping Line (Samudera),
Singapore, has gone live with equipment control and transport management modules of
Four Soft`s shipping solution - 4S iShipping, to help manage and consolidate its shipping
operations.
Samudera shipping line has successfully rolled-out 4S iShipping equipment control module
and transport management module in to the production recently. The project, internally
named as `EMAS` by Samudera, is designed specifically to meet Samudera`s stringent
business requirement in managing their day to day container operations. The application
has been rolled-out into several countries and few of the Locations include Singapore,
Malaysia, Indonesia, India, UAE, Hong Kong and Thailand.
5
Four Soft implements 4S eCustoms at Charter Brokerage
Four Soft flagship product 4S eCustoms has successfully gone live at multiple locations of
Charter Brokerage - one the of the major customs brokerage and freight forwarding
companies in the US and Canada. Charter Brokerage provides a wide range of services to
its customers including customs import and export clearance and regulatory compliance
services, services for the recovery of customs duty drawback, administrative and
inventory tracking services for the operation of foreign-trade zones and bonded
warehouses.
This substantial expertise enables them to assure their customers that their import and
export operations are administered with the highest levels of compliance thereby
minimizing issues, reducing costs and expenses, and improving their bottom lines.
Four Soft wins WMS contract from Len Lothian
Four Soft, a global leader offering software solutions for transportation and logistics, has
announced that it has recently signed a contract with Len Lothian, to implement its
warehouse management system (WMS) - 4S eLog across its location.
Family owned and operated company Len Lothian has been in the storage business for
over 45 years offering 3PL logistics services to industry clients and self storage services to
the general public from its five site location over the cities of Edinburgh and Glasgow.
Company Profile
Four Soft is one of the world's largest transportation and logistics software Products Company
providing innovative and integrated enterprise solutions ensuring customer satisfaction.
6
Founded in 1999, Four Soft software engineers are providing solutions to enterprises across the
SCM market place. Four Soft is head quartered in Hyderabad, India and has 10 development
centres across the globe to cater to large clientele. The company's headquarter is registered as
100% Export oriented unit under the Software Technology Park (STP) scheme of Govt of India.
Four Soft is a Public Limited Company since April 2003 and has been registered in India's top
Stock exchanges - NSE and BSE. With ISO 9001:2000 certification, SEI-CMMi quality initiatives
and excellent development teams, Four Soft has been successfully empowering its customers
with innovative end-to-end technology solutions.
Four Soft currently has 300 customers with 50,000 plus users in across 120 countries.
Leveraging our world-class product delivery capabilities, technological talent, domain expertise
and strategic partnerships with major vendors and growing client base, Four Soft has become a
key player in the global IT SCM market.
Company got ISO 9001:2000 certified in provides readymade and tailor-made solutions and
products for freight forwarding, shipping, customs brokerage, contract and warehousing
logistics, shipper logistics, and business intelligence.
Peer Group Comparison
Name of the company
Four Soft Ltd
Rolta India Ltd
Redington India
Allied Digital Services
CMP (Rs.)
25.20
185.90
331.55
232.90
Market
Cap.(Rs.mn.)
975.49
29923.4
26051.8
8458.3
EPS(Rs.)
0.36
26.37
11.90
26.19
P/E(x)
70.14
7.02
27.86
8.89
P/Bv(x)
0.98
1.84
4.24
2.66
Dividend(%)
0.00
30.00
40.00
20.00
Key Concerns
Exposure to various economies
Foreign exchange fluctuations
7
Increasing Competition
Financials Results
12 Months Ended Profit & Loss Account (Consolidated)
Value(Rs. in million)
FY08A
FY09A
FY10E
FY11E
Description
12m
12m
12m
12m
Net Sales
1727.33
1945.93
1373.34
1538.14
Other Income
18.86
73.76
54.78
62.99
Total Income
1746.19
2019.69
1428.12
1601.13
Expenditure
-1557.36
-1342.32
-1236.66
-1338.18
Operating Profit
188.83
677.37
191.45
262.95
Interest
-55.11
-39.57
-25.36
-26.63
Gross Profit
133.72
637.80
166.09
236.32
Depreciation
-46.93
-42.12
-27.68
-29.07
Profit before Tax
86.79
595.68
138.41
207.25
Tax
-39.19
-148.44
-25.91
-51.81
Profit after Tax
47.60
447.24
112.50
155.44
Equity Capital
193.10
193.54
193.55
193.55
Reserves
800.46
1401.40
1513.90
1669.34
Face Value (Rs.)
5.00
5.00
5.00
5.00
Total No. of Shares
38.62
38.71
38.71
38.71
EPS
1.23
11.55
2.91
4.02
8
Quarterly Ended Profit & Loss Account (Consolidated)
Value(Rs. in million)
30-Jun-09
Description
3m
Net Sales
357.03
Other Income
30-Sep-09
3m
31-Dec-09
31-Mar-10E
3m
3m
323.19
333.23
359.89
14.72
14.48
12.18
13.40
Total Income
371.75
337.67
345.41
373.29
Expenditure
-347.73
-286.43
-289.40
-313.10
Operating Profit
24.02
51.24
56.01
60.18
Interest
-7.51
-5.00
-6.30
-6.55
Gross Profit
16.51
46.24
49.71
53.63
Depreciation
-7.00
-7.17
-6.69
-6.82
Profit before Tax
9.51
39.07
43.02
46.81
Tax
-4.69
-7.80
-6.40
-7.02
Profit after Tax
4.82
31.27
36.62
39.79
Equity Capital
193.55
193.55
193.55
193.55
Face Value (Rs.)
5.00
5.00
5.00
5.00
Total No. of Shares
38.71
38.71
38.71
38.71
EPS
0.12
0.81
0.95
1.03
9
Charts:
10
11
1 Year Comparative Graph
Four Soft Ltd
BSE SENSEX
Outlook and Conclusion
At the current market price of Rs.25.20, the stock is trading at 8.67 x FY10E and 6.28 x
FY11E respectively.
Price to Book Value of the stock is expected to be at 0.57 x and 0.52 x respectively for
FY10E and FY11E.
Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at
Rs.2.91 and Rs.4.02 respectively.
Operating profit and PAT of the company is expected to grow at a CAGR of 12% and 48%
over 2008 to 2011E respectively.
On the basis of EV/EBITDA, the stock trades at 5.1 x for FY10E and 3.71 x for FY11E.
Four Soft Ltd is bringing top players of the logistics industry on a single platform to
form a strategic initiative- FFIFA.
Four soft Ltd, Mondial Logistics has selected 4S eLog to automate the management of
its warehouses throughout its locations in the Netherlands.
12
We recommend ‘HOLD’ in this particular scrip with a target price of Rs.29.00 for
Medium to Long term investment.
Industry Overview
Sector structure
According to the National Association of Software and Service Companies (NASSCOM), the apex
body for software services in India, the revenue of the information technology sector has grown
from 1.2 per cent of the gross domestic product (GDP) in 1997-98 to an estimated 5.8 per cent
in 2008-09.
The Indian IT-BPO industry grew by 12 per cent in 2008-09 to reach US$ 71.7 billion in
aggregate revenue. Software and services exports (includes exports of IT services, BPO,
engineering services and R&D and software products) reached US$ 47 billion in FY2009,
contributing nearly 66 per cent to the overall IT-BPO revenue aggregate.
ITeS, which started with basic data entry tasks over a decade ago, is witnessing an expansion in
its scope of services to include increasingly complex processes involving rule-based decision
making and even research services requiring informed individual judgment. It now offers
services such as knowledge process outsourcing (KPO), legal process outsourcing (LPO), games
process outsourcing (GPO) and design outsourcing, among others.
According to AT Kearney, India continues to be the most preferred destination for companies
looking to offshore their IT and back-office functions. It also retains its low-cost advantage and
is among the most financially attractive locations when viewed in combination with the
business environment it offers and the availability of skilled people.
Moving up the value-chain
13
India with its natural competitive advantage is likely to play a huge role in various segments of
the ITeS industry.
•
The Indian animation industry is rapidly growing as a major outsourcing hub with a
growth rate of 30 per cent.
•
The Indian KPO sector is estimated to become a US$ 10 billion industry by 2012, from
the current size of US$ 4 billion.
•
As per a Credit Rating and Information Services of India Ltd (CRISIL) study, engineering
services outsourcing (ESO) is poised to be the next big opportunity in the Indian
outsourcing services industry. The ESO sector is likely to grow at a compounded rate of
26 per cent and post revenues aggregating around US$ 7.5 billion by 2012.
•
The market for recruitment process outsourcing (RPO) continues to grow at a healthy
rate notwithstanding the tough economic condition with the number of deals signed
rising this year, according to a study by global consulting and research firm Everest
Group.
Deals
The cross-border merger and acquisition (M&A) involving Indian IT and IT-enabled companies
increased by nearly 12 per cent between January 1 and December 15, 2008 to US$ 3.22 billion
(in 98 deals) compared with US$ 2.88 billion (in 159 deals) in 2007. The average deal size in
2008 increased to US$ 32.86 million (as compared to US$ 18.15 million), according to Grant
Thornton India.
Moreover, as top outsourcing customers in the US and Europe seek to renew their computer
infrastructure management contracts worth nearly US$30 billion, Indian tech firms including
HCL, Tata Consultancy Services (TCS), Wipro and Infosys are bidding against incumbent
multinational rivals IBM and HP, for their share of the lucrative opportunity.
14
•
Nasdaq-listed EXL Service has acquired American Express’ travel services captive in India
for US$ 30 million.
•
Etisalat DB Telecom, a new entrant in the Indian telecom space has awarded an end-toend outsourcing contract to three BPO service providers—Tech Mahindra, Aegis and
Conflux. The deal, spanning over five years, is valued at over US$ 161.3 million.
•
Indian IT majors Tata Consultancy Services (TCS), Infosys Technologies and Wipro Ltd,
besides global IT giants IBM and Accenture, have bagged a five-year US$ 1.5 billion
outsourcing deal from BP (British Petroleum), the world’s third-largest petroleum
refining company in the world.
•
Infosys Technologies subsidiary Infosys BPO will acquire US-based McCamish Systems
for an initial payment of US$ 38 million.
•
The largest drugstore chain in the US, Walgreens, has entered into a 10-year
outsourcing deal with India-based BPO provider , Genpact.
•
IT major Wipro Technologies has entered into a multi-year outsourcing engagement
with British American Tobacco, to help the company improve effectiveness and
efficiency of application support services for its global business operations
Growth
A study by NASSCOM and Everest India on the Indian BPO sector states that India is at the
forefront of the rapidly-evolving BPO market, having established itself as a "destination of
choice."
According to the study, the Indian BPO sector, at its current momentum, can reach around US$
30 billion in export revenues by 2012. Furthermore, the domestic BPO market (in verticals such
as, banking, retail, insurance, media, telecom and government) provides an additional US$ 15
15
billion-US$ 20 billion opportunity for the sector. According to the study, the Indian BPO sector
has been growing at more than 35 per cent over the past three years.
Moreover, India’s domestic BPO market that has close to 500 players will grow at a compound
annual growth rate (CAGR) of 33.3 per cent, to reach revenues of US$ 6.82 billion by 2013, up
from US$ 1.62 billion in 2008, according to a report by information technology research firm,
IDC India.
Exports
According to NASSCOM, if India maintains its current share of the global offshore IT-ITeS
market, the IT-ITeS exports from India will exceed US$ 330 billion by 2019-20 (nearly 14 per
cent of the projected worldwide spend). Currently, exports stand at US$ 47.3 billion.
The ITeS sector is working towards reducing its dependence on the US market and is exploring
new and emerging markets such as those in Australia and the Middle East.
Government Initiative
Realising its potential, after IT Parks and IT special economic zone (SEZs), the government has
cleared a proposal for creating much larger Information Technology Investment Regions (ITIRs)
to give a fillip to the country's growing IT and ITeS sector.
Road Ahead
The domestic IT services market in India is estimated to grow to US$ 12.8 billion in 2013 from
US$ 5.7 billion in 2008-09, representing a compound annual growth rate (CAGR) of 18.6 per
cent from 2008 to 2013, according to a report by IT market research firm, Springboard
16
Research. The report predicts that the Indian IT services market will be dominated by IT
infrastructure management services, which are expected to reach US$ 7.2 billion in 2013,
reflecting a steady 53 per cent market share, and a CAGR of 18.1 per cent from 2008 to 2013.
However, applications services with a growth rate of 19.6 per cent are expected to remain the
fastest-growing market segment. IT consulting services will remain the smallest segment, with
an expected market share of 5 per cent and a growth rate of 16.4 per cent.
Infosys Technologies sees over US$ 1 billion worth of outsourcing contracts coming from the
Indian market over the next few years, as the country’s government and state-owned
organisations seek to become more efficient by outsourcing their IT needs.
Advisory firm Zinnov Management Consulting expects R&D offshoring to grow at an average of
10 per cent in 2010, up from the expected growth of 6-7 per cent in 2009.
________________
____
_________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
17
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