Recommendation from Software Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

NUCLEUS SOFTWARE EXPORTS : SPINNING REWARDING SOLUTIONS

HERE IS WHY
✓   Good growth prediction for IT sector
✓   Expertise in banking and financial solutions
✓   Orders from top-end companies

I n the ongoing results season, one of the sectors that have emerged as standouts is information technology (IT). Against expectations, most of the IT companies, barring a few, have beaten street estimates. Also, the management commentary of several IT companies indicates green shoots emerging in the banking and financial services. The Indian software product industry is expected to reach USD 100 billion by 2025.

India’s IT industry is likely to hit the USD 350 billion mark by 2026 and contribute 10 per cent towards the country’s GDP. Taking this into account, our choice scrip recommendation for this issue is Nucleus Software Exports Ltd. The company provides lending and transaction banking products to the global financial services’ industry. Its software powers the operations of more than 200+ financial institutions in over 50 countries supporting retail lending, corporate banking, cash management, mobile and internet banking, automotive finance and other business areas.

The company’s financial performance in Q4FY24 on a consolidated basis saw net sales increase by 1.97 per cent YoY to ₹210.26 crore compared to ₹206.20 crore from the previous year’s same quarter. On a sequential basis, its revenue increased by 3 per cent. The PBIDT excluding other income decreased by 29.64 per cent to ₹58.22 crore compared to ₹82.74 crore from the previous year’s same quarter, while sequentially it increased by 22.18 per cent. Its profit after tax (PAT) has emerged at ₹52.14 crore compared to ₹67.65 crore from the previous year’s same quarter, indicating a YoY decrease of 22.93 per cent and sequentially increasing by 26.22 per cent from ₹41.31 crore.

The company’s solutions facilitate more than 26 million transactions each day, managing over USD 200 billion of loans and enabling more than 3 lakh users logging in daily. The company’s flagship products such as Finn One NEO and Finn Axia are powered by AI and have an API ecosystem too. The company is currently experiencing significant growth due to its product Finn One NEO, which has already attracted over 60 customers. It is also exploring new markets in the US, Canada and Japan, attracting a vast pool of potential customers.

Nucleus Software Exports has significantly bolstered its workforce with a 102 per cent year-over-year increase in headcount and a 47 per cent increase quarter-over-quarter. The company’s low attrition rate of less than 5 per cent indicates a positive work environment and engaged employees. Its order book position is at ₹780 crore, including ₹707.7 crore of product business and ₹72.3 crore of projects and services. It maintains a strong cash position, prioritising cash flow and reinvestment in customer support.

Additionally, the company is focusing on margin improvement. It has partnered with big names in the technology industry, namely Microsoft, AWS, Oracle and Red Hat. It serves big names in the banking, financial services and insurance (BFSI) space, including State Bank of India, ICICI Bank, HDFC Bank, City Bank, DBS Bank, Standard Chartered Bank, and many more. The company is currently trading at a PE of 23.9 times as against the industry PE of 36.5 times and higher than its three-year median PE of 21.7 times. Considering the company’s business and its leading position in the industry, we recommend BUY.